By
Chimamanda U. Martha
October 17th, 2023
As Evergrande grapples with its financial challenges, the company has been actively pursuing an offshore debt restructuring plan.
Evergrande Group, China’s largest indebted property developer, has finally unveiled its long-awaited earnings report, disclosing a staggering $81 billion combined loss for 2021 and 2022. According to the company’s financial earnings report released on July 17, the real estate developer acknowledged a net loss of 476 billion yuan ($66.36 billion) in 2021 and an additional loss of 105.9 billion yuan ($14.76 billion) in 2022.
These substantial losses were primarily attributed to write-downs of properties, return of land, losses on financial assets, and mounting finance costs. Notably, the reported loss represents a significant reversal from the net profit of 8.1 billion yuan recorded in 2020 when Evergrande’s operations were relatively stable.
The repercussions of Evergrande’s massive debt burden have reverberated throughout China’s property sector, a vital pillar of the country’s economy. The company’s struggles have resulted in defaults and unfinished homes, leaving suppliers and creditors in a precarious position.
Evergrande Shares Suspended from Trading on Hong Kong Stock Exchange
The company’s financial woes started when it failed to repay a debt of $148 million in 2021. In order to compensate its suppliers and creditors, the real estate giant sold some of its assets and shares but was unable to meet the demand of investors, thereby going into default. The company’s total liabilities at the time amounted to $300 billion after the default
The following year, Evergrande announced that it had received an order from local authorities to halt trading its shares on the Hong Kong stock exchange, pending the release of the long-overdue financial results and ongoing investigations into seized deposits. The indefinite suspension raises questions about potential delisting if the shares remain halted beyond the 18-month threshold.
The company is now restructuring and confirmed that its shares will remain suspended.
Evergrande’s Total Liabilities Reached $340 Billion
According to the financial earnings report, Evergrande’s total liabilities have surged from $300 billion at the time of its default to $340 billion by the end of 2022, underscoring the significant financial hurdles faced by the company. The increase represents a 23% percent rise compared to the previous year, revealing the mounting challenges the company, the government, and investors encounter as they work towards resolving weaknesses within a sector that contributes to over a quarter of China’s economic activity. Additionally, the financial report indicated a substantial drop in revenue, with Evergrande’s earnings plunging by 55% to 230.1 billion yuan in 2022 compared to the more prosperous period of 2020.
In contrast, the company’s total assets experienced a decline of 20%, amounting to 1.8 trillion yuan. This drop in assets further accentuates the financial strain faced by Evergrande and its ongoing struggle to maintain stability amidst challenging market conditions.
Meanwhile, it is worth noting that Evergrande’s auditors, Prism Hong Kong and Shanghai Limited, refrained from expressing opinions on the company’s financial statements. The auditor cited insufficient audit evidence as the reason behind this decision, raising concerns about transparency and accuracy.
The reported losses align with analysts’ expectations, given the decline in Evergrande’s contracted sales, which amounted to 443 billion yuan in 2021 and a mere 31.7 billion yuan in 2022, compared to 723 billion yuan in 2020.
As Evergrande grapples with its financial challenges, the company has been actively pursuing an offshore debt restructuring plan. It recently announced that hearings for the reorganizational schemes will be held in Hong Kong and the Cayman Islands, allowing creditors to consider and approve the proposed plan.