China Evergrande’s scramble to meet its enormous debt obligations has turned into a real-word financial soap opera.
Perhaps thanks to the 24-hour financial news cycle and Twitter, the global attention this corporate horror story is grabbing is arguably like nothing we’ve seen before.
But Evergrande is far from the only Chinese property developer whose executives, we assume, really don’t like talking about capital structure ratios at dinner parties.
An analysis of the financials of the largest Chinese residential property development companies shows Evergrande is not the worst when it comes to leverage (based on debt to equity ratios).
There is one other Chinese property development behemoth more geared than Evergrande that few are talking about.
And there’s many more not far behind.
Guangzhou R&F Properties (HKG: 2777)
Headquartered in Zhujiang New City, Guangzhou R&F Properties Co Ltd has FY2020 attributable contracted sales of around $21 billion. It has residential apartments and other major property projects across China and internationally.
It is also the world’s largest luxury hotel owner. It’s cooperative brands include Hyatt, Hilton, Sheraton, Intercontinental, Crowne Plaza, Meridien, Pullman, Holiday Inn, Sofitel, Conrad, Westin and The Ritz-Carlton.
Analysis of its latest financials (to June 30, 2021), show Guangzhou R&F Properties has a debt to equity ratio of just below 160%.
This compares to China Evergrande with a debt to equity ratio of just below 140%.
We’ve ranked the top listed Chinese property development companies by leverage below. We believe these 7 are not only China’s most leveraged residential property developers, but more than likely the 7 most leveraged residential property developers in the world.
For reference, the United States’ largest homebuilder, D.r. Horton Inc (NYSE: DHI) has a debt to equity ratio of 31.4%.
Asia Markets is not suggesting Guangzhou R&F Properties is unable to meet its debt obligations.
In its 2021 Interim Results Announcement, the company noted liquidity concerns stemming from credit market volatility and increasing oversight from the Chinese Government.
“China continues to undergo adjustments in policies that affect the property sector and there is increasing oversight to ensure the stable and healthy development of the property sector, but policy fluctuation will affect the overall liquidity management to a certain extent,” said the company.
“In addition to industry regulations, overall credit markets in the first half have been quite volatile, making it more uncertain as to available sources of financing.
“However, the Group still managed to make significant improvements in credit profile during this period. In the first half, the Group reduced total borrowings by RMB16.4 billion, and secured RMB25.7 billion of financing to refinance existing indebtedness and enhance available liquidity.
“The capital raising achieved allowed the Group to address short-term maturities and demonstrates our ability to manage liquidity during tight credit environments.
“The Group expects challenges in financing markets persist, hence, the Group will continue striving to maintain and explore financing channels to further improve the future credit profile.”
Year-to-date the company’s share price is down -48.5%, with a market cap just short of $19 billion.
Unchartered waters for Evergrande
Evergrande yesterday missed a deadline for a $83.5 million coupon payment on one of its many offshore bonds.
The company is now navigating a 30-day grace period before the missed payment is considered a default.
Meanwhile, Evergrande’s Hong Kong-listed electric vehicle division, China Evergrande New Energy Vehicle Group, has just released a dire market update.
“As of the date of this announcement, the Group is encountering serious shortage of funds. In view of the liquidity pressure, the Group has suspended paying some of its operating expenses and some suppliers have suspended supplying for projects,” said the update.
“There is no guarantee that the Group will be able to meet its financial obligations under the relevant contracts.”
Here’s the full announcement: