China property

China Evergrande reports 2016 net profit up 1.6 pc to 17.6b yuan

The indebted homebuilder says it plans to cut its outstanding perpetual bonds by half this year

PUBLISHED : Tuesday, 28 March, 2017, 10:45pm
UPDATED : Tuesday, 28 March, 2017, 11:32pm

China Evergrande Group, which unseated China Vanke to become the mainland’s largest homebuilder by sales in 2016, reported net profit for the period grew a modest 1.6 per cent on year.

The property giant, which is preparing a back-door stock market listing in Shenzhen, said it has started a second round of fundraising worth up to 20 billion yuan (US$2.91 billion) which it expects to complete in May.

Evergrande in October said it would inject property assets held by a subsidiary into Shenzhen Special Economic Zone Real Estate & Properties Group.

Evergrande reported 2016 net profit of 17.62 billion yuan, according to a filing to the Hong Kong stock exchange. The result was dragged by perpetual bond expenses and foreign exchange losses.

Core profit, excluding revaluation gains and forex losses, was up 89 per cent to 20.8 billion yuan.

The homebuilder, also the country’s most indebted developer, said its total borrowings surged 80 per cent by the end of 2016 on year to 535 billion yuan.

“I don’t think there are any risks in our high gearing ratio,” said chief executive Xia Haijun during the annual result briefing in Hong Kong on Tuesday.

“We own the largest land reserves among Chinese developers, totalling 229 million square metres, the quick land value increment will offset the debt risks.”

The net gearing ratio rose to 119.8 per cent by the end of 2016, from 93.5 per cent a year earlier.

Xia said the company plans to repay 50 per cent of its more than 100 billion yuan perpetual bonds — high-interest debt — this year, and to further cut the liability by two-thirds in 2018.

When treating the perpetual bonds as debt, Evergrande’s debt ratio was about 430 per cent at the end of June.

The homebuilder’s leverage ratio will improve after its back-door listing on the mainland A-share market, Xia added.

The developer recorded 373.4 billion yuan in contracted sales in 2016, representing 85 per cent growth on year. It has set a 2017 sales target of 450 billion yuan, up 21 per cent from 2016’s actual sales.

Over the weekend, Evergrande added to its debt pile with a US$1 billion seven-year bond carrying a yield of 9.5 per cent. That followed a US$1.5 billion dual tranche issued earlier in the week.

The arrangement was to refinance existing short-term debt with long-term debt, Xia said.

Evergrande chairman Hui Ka-yan added that the company has few concerns about financing, given its 304 billion yuan cash on hand at the end of 2016.

Evergrande has been in the spotlight after building up a 14 per cent stake in rival China Vanke, intensifying an already heated shareholder battle. The developer said in a regulatory filing on March 16 that it has irrevocably entrusted the voting rights of its shares in Vanke to Shenzhen Metro, the second-largest shareholder in Vanke, for a period of one year.

Hui said at the press conference that the decision was made because he doesn’t want to put Vanke’s management in a difficult position in seeking agreement between shareholders.

The developer decided not to issue a dividend for fiscal 2016 due to the ongoing “spin-off reorganisation” for the back-door listing and said it planned to issue a special dividend of the company’s 50 per cent of distributable profits for 2016 and the first half of 2017 after the spin-off.

Evergrande shares gained 2.9 per cent on Tuesday to close at HK$6.38 ahead of the results announcement.