China’s Largest Developer Sees Record 96% Interim Profit Slump
Country Garden Holdings Co. said first-half earnings plunged 96%, the most since its 2007 listing in Hong Kong, as China’s property crisis engulfed the nation’s largest developer by sales.
Unaudited net profit slumped to 612 million yuan ($88 million) in the six months ended June, a filing by the Foshan-based company showed Tuesday. Core net profit, which adjusts for items including property revaluations, dropped 68%.
Warnings that earnings would tumble
Country Garden had earlier warned that earnings would tumble, underscoring how the sector’s woes have spread to developers once considered to be relatively safe. The company is trying to shore up its balance sheet after losing its investment grade at Fitch Ratings and Moody’s Investors Service.
Unlike its largest peers, Country Garden focuses on the lower end of the market, making it more vulnerable to weakening demand from homebuyers during an economic slowdown. Many of its customers are migrant workers who are finding it harder to upgrade residences as incomes dwindle and job security worsens.
Shares of Country Garden fell as much as 3.9% on Tuesday afternoon in Hong Kong trading, extending this year’s decline to 64%. Most of its offshore bonds are below 50 cents on the dollar, after some traded near face value earlier this year.
Other key figures from the results:
Revenue shrank 31% from a year earlier
Gross margin declined to a record low of 10.6%
The builder continued to meet two of the “three red lines” -- debt metrics imposed on developers as part of a crackdown on leverage in the industry -- according to Bloomberg calculations based on company data
Net debt to equity improved, while cash coverage to short-term debt slipped
Liabilities to assets climbed slightly to 74%, still breaching an imposed 70% ceiling
The company provided 34.7 billion yuan in guarantees for certain liabilities of joint ventures and other parties, down from 43.2 billion yuan at the end of 2021.
A sector-wide liquidity crunch has prompted concerns about debt repayment for even the largest developers, and many have sought extensions. Chinese authorities have recently stepped up support for the debt-straddled industry, including on fundraising.
On a positive note, Country Garden was among developers chosen to sell new onshore bonds with a state-owned entity’s guarantee, part of regulatory efforts to stem the cash squeeze. Rival Longfor Group Holdings Ltd. sold a 1.5 billion yuan bond last week near the lower end of the initial price range.
A Country Garden executive assured investors in mid-August that its cash flow remained strong even under extreme stress tests. Still, it has taken steps to shore up financing. Last month, it sold stock at a 13% discount to raise HK$2.83 billion ($361 million), with some of the proceeds to be used to repay offshore debt.
