China Evergrande’s survival battle gets ugly with warning of imminent slump in earnings

Net profit in the first six months of this year seen falling by 29 to 39 per cent on the back of losses in property sales and carmaking venture

It would be the third year in a row the developer has reported a slump in profit, and the lowest income in five years amid lingering liquidity crunch

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Chairman Hui Ka-yan (left) and CEO Xia Haijun, seen in a March 2019 file picture, are steering the indebted developer amid its liquidity challenges. Photo: Nora Tam

Published: 10:49am, 26 Aug 2021Updated: 11:55am, 15 Sep 2021

China Evergrande Group, facing its sternest test of corporate survival, has warned investors of a slump in earnings for a third straight year as property sales cooled and losses from its ambitious carmaking venture ballooned. Its shares tumbled.

The developer expects to report a net profit between 9 billion yuan (US$1.39 billion) and 10.5 billion yuan for the six months to June 30, according to a profit warning in an exchange filing late on Wednesday. That would represent a 29 to 39 per cent slide from the same period a year earlier.

“The decline in profit in the first half of 2021 was mainly due to the decrease in the selling price of properties and the increase in expenses in the first half of the year,” billionaire founder and chairman Hui Ka-yan said in the filing.

The warning added another layer of concerns to its operations, with shareholders having suffered a combined US$48.5 billion erosion in the market value of Hong Kong-listed companies linked to the tycoon. Shares of China Evergrande have tumbled 69 per cent this year, while its electric car and property management units fell by 82 and 35 per cent, respectively.

China Evergrande Centre in Wan Chai, which serves as the developer’s headquarters in Hong Kong. Photo: AFP

The stock closed 7.2 per cent lower at HK$4.23 in Hong Kong in a weak market that saw the Hang Seng Index retreat by 1.1 per cent.

The liquidity crunch at Hui’s flagship company, whose more than US$300 billion of liabilities at the end of 2020 made it the most-indebted developer on Earth, has forced the billionaire to put some of its assets and ventures up for sale. At the same time, the government and the central bank have called on the firm to fix its balance sheet, a sign its distress is unnerving the highest authorities.