Chinese property giant in trouble?

Evergrande is reportedly the most indebted China-listed property firm.

China’s second-largest developer, Evergrande Real Estate Group, claims it can meet debt obligations despite Standard & Poor’s assessment that the company is now vulnerable to non-payment, after debt doubled in the past 12 months, reported Bloomberg.

According to data compiled by Bloomberg, the developer is now the most indebted of the 198 listed real estate firms in China.

Jimmy Fong, investor relations official at Evergrande, said the group will meet its near-term obligations after a property market pick up had improved liquidity.

However, there is still a 6.2 percent probability that Evergrande will miss payments in the next year, according to Bloomberg’s Default Risk model. The model tracks metrics including share performance, liabilities and cash flow.

“Default risk has risen as Evergrande leverages up aggressively to speed up construction and land acquisition, as well as expansion into non-property related businesses,” said Tony Chen, credit analyst at Nomura Holdings. “Refinancing needs are very heavy.”

There was a massive 90 percent jump in total debt at Evergrande in 2015, and Bloomberg reported that this total was 15 times what the company earned before interest, taxes, depreciation and amortisation. This figure happens to be more than double the industry median of 6.6 times.

Data also revealed that the Chinese developer has CNY159 billion of obligations due before the end of 2016, and CNY54.8 billion in the following year.

That led to Standard & Poor’s cutting Evergrande’s unsecured bond rating to CCC+ in April. This rating means it is vulnerable to non-payment and dependent on favourable business conditions.

Moody’s Investors Service also has concerns about the company, detailing in a report that the debt-fuelled expansion has weakened the developers’ credit quality despite the improved liquidity.

“We have CYN164 billion of cash on hand at the end of 2015 and we achieved CNY67 billion of contracted sales in the first quarter this year, which will reduce leverage,” Fong said. “Most of the debt due this year can be easily be rolled over.”

This article was first published on DDproperty.com, Thailand’s leading property site.

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