Evergrande Can't Produce Financial Report On Time

Evergrande unit Hengda unable to publish financial results by Aug 31

Property developer China Evergrande Group's 3333.HK main unit said on Wednesday that it was unable to disclose its six-month financial report by Aug. 31 because significant changes in its operation had added extra auditing work.

Hengda Real Estate Group Co, the developer's flagship onshore unit, also promised to publish its 2021 annual report as soon as possible, it said in a filing to the Shenzhen Stock Exchange.

In August Hong Kong's audit regulator initiated an inquiry into the financial statements of China Evergrande's property services unit and its former auditor after questions were raised following an investigation into seized deposits worth $2 billion.

Evergrande Changes Terms of Wealth Product Redemptions

MSN: Cash-strapped China Evergrande revises payment plan for wealth unit investors

China Evergrande Group on Friday dialled back plans to repay investors in its wealth management products, in a move that highlights the deepening liquidity squeeze at the property developer that has failed to meet its offshore debt obligations.

Evergrande, whose $19 billion in international bonds are deemed to be in cross-default by rating agencies after the developer missed a deadline to pay coupons earlier this month, did not pay offshore coupons due earlier this week.

The developer has been scrambling to raise cash by selling assets and shares to repay suppliers and creditors.

Chinese coverage here: 恒大财富突然调整兑付方案！回笼资金不理想终止原方案 来看最新方案

Evergrande Waves Bye-Bye to Foreign Creditors

Bloomberg: Evergrande Declared in Default as Huge Restructuring Looms

Fitch Ratings cut Evergrande to “restricted default” over its failure to make two coupon payments by the end of a grace period on Monday, a move that may trigger cross defaults on the developer’s $19.2 billion of dollar debt.

The downgrade came just minutes after Fitch applied the same default label to Kaisa Group Holdings Ltd., which failed to repay a $400 million dollar bond that matured Tuesday. Together, the two companies account for about 15% of outstanding dollar bonds sold by Chinese developers.

Long considered by many investors as too big to fail, Evergrande has now become the largest casualty of Chinese President Xi Jinping’s campaign to tame the country’s overindebted conglomerates and overheated property market. Before this week, Chinese borrowers had defaulted on $10.2 billion of offshore bonds in 2021, with real estate firms making up 36% of the total, according to data compiled by Bloomberg.

While Evergrande bondholders face deep haircuts in a restructuring that could take months or even years to resolve, there were few signs of financial contagion on Thursday. That’s partly because investors had been anticipating a default for months, but also thanks to a flurry of activity by China’s government to cushion the blow.

What I said when the talk of default got going: China Will Nuke Foreign Investors From Orbit

Evergrande Has Defaulted, Update: Maybe Not?

Link goes to a PDF: Evergrande officially defaulted - DMSA is preparing bankruptcy proceedings against Evergrande Group

China Evergrande Group today again defaulted on interest payments to international investors. DMSA itself is invested in these bonds and has not received any interest payments until today's end of the grace period. Now DMSA is preparing bankruptcy proceedings against Evergrande and calls on all bond investors to join it.

Earlier in the day: Evergrande teeters on brink of default

Some bondholders of cash-strapped China Evergrande Group have not received coupon payments by the end of 30-day grace periods at close of Asia business today, sources said, pushing the developer again to the edge of default.

Evergrande, the world’s most indebted developer which once epitomised a freewheeling era of borrowing and building, has been stumbling from deadline to deadline in recent weeks as it grapples with more than US$300 billion (RM1.2 trillion) in liabilities, US$19 billion of which are international market bonds.

The company has not defaulted on any of its offshore debt obligations. But a 30-day grace period on coupon payments of more than US$148 million on its April 2022, 2023, and 2024 bonds ends on Wednesday.

About six weeks ago I posted: China Will Nuke Foreign Investors From Orbit

Update: Evergrande met at least part of today's bond payment deadline

The New York Times reports that the embattled Chinese developer made good on at least part of $148m in payments due today.

Earlier today the Wall Street Journal, citing sources, said the company will be slowly wound down with the help of local governments.

Evergrande is Bear Stearns, Not Lehman

Reuters: China Evergrande to raise $5 bln from property unit sale

Evergrande: Nothing For Foreign Bond Holders So Far

Yesterday, I posted China Will Nuke Foreign Investors From Orbit. I briefly discussed why I believed the CCP would only bailout Evergrande to prevent contagion and not make everyone whole. Although a rescue plan still hasn't been announced, local bond holders will get at least some of their interest payment tomorrow.

ZH: Offshore Creditors Remain In Limbo As Evergrande Agrees To Pay Thursday's Interest On Local Bonds Only

Bloomberg reported that the September 23rd yuan coupon payment on local, yuan-bonds had been negotiated with bondholders (without clarifying the terms of the arrangement) but it was unclear what the fate of the upcoming Offshore bond coupon payment is.

Morgan Stanley had previously suggested this plan of action, forecasting that Beijing may initiate a managed debt restructuring of “a troubled property developer” in the coming week, followed by policy easing in October to contain spillover to the broader economy.

The world’s most indebted developer is supposed to pay bond interest totaling about $119.5 million on Thursday. Interest comes due Thursday on two Evergrande notes, even as it falls behind on payments to banks, suppliers and holders of onshore investment products

I will be mildly surprised if there's nothing for foreign bondholders, if only because China wants to keep the shingle out for business, but I do not expect much because foreign lenderss are not a systemic risk for China. Any rescue in any nation should be focused on keeping a bust from triggering contagion. A bailout of a failed entity should be avoided at all costs and if the entity must be saved, it should come at 100 percent loss for all equity and bondholders. In the United States, bailouts are for the most destructive actors. I expect China will be more just.

China Will Nuke Foreign Investors From Orbit

I believe Evergrande presents a barbell risk. One tail is contagion risk that spills into the currency markets. That's the nightmare scenario for the global economy. At the other end is highly concentrated risk for everyone directly involved. They risk more than 100 percent loss in the event of claw backs and possibly jail time for corruption.

A couple years ago, I would have expected a somewhat normal bailout. In the past year though, the government arrested its wealthiest and most successful entrepreneur Jack Ma. It scrubbed one of the most popular actresses from the Internet, with the only obvious connection being she was a friend of Jack. The CCP has been wrecking the share prices of industry after industry as part of a regulatory crackdown. For profit education? Toast.

Liquor. Technology. Video games. Casinos. Entertainment.

The CCP doesn't care about investors first. It doesn't care about profits. State-owned industries don't need profits. The CCP cares about power and social harmony. Whenever there is a choice between the people and the wealthy, a really big and public choice, they will choose the people. There will not be a 2008-style bailout for wealthy Chinese, banks or foreign investors. There will be bailouts to the extent they are necessary, but there won't be a USA 2008 situation where the entire bailout is handed over to bankers. Most of the bailout funds to AIG were passed through to Goldman Sachs and other speculators. Goldman was allowed to become a bank to get money directly from the government. Goldman is not a bank and was not a systemic risk should it have failed. It is a corrupt, thieving organization profiting from the looting and immiseration of the American people. In China, perhaps Goldman's executives and their entire board would have been jailed, or at least had to pay back all their money as part of compensation to the victims of the bubble.

If you're wondering how China is going to pay for a bailout, I suggest you look in the mirror if you're a wealthy investor or a foreign investor in China. If things get out of control, or maybe if the problem is much larger than understood, it'll spill into the foreign exchange market. Otherwise, risk will be contained for the system and the people. But not for investors who made stupid bets on the assumption the CCP will bail them out. No one is too big for the firing squad in China.

Will China Press CTRL-P Again?

China Lets Evergrande Reset Debt Terms to Ease Cash Crunch Archive link

Regulators in Beijing have signed off on a China Evergrande Group proposal to renegotiate payment deadlines with banks and other creditors, paving the way for a temporary reprieve as the cash-strapped developer struggles to come to grips with more than $300 billion of liabilities.

China’s Financial Stability and Development Committee, the nation’s top financial regulator, gave its blessing to Evergrande’s plan last month after the property giant missed interest and principal payments on some loans, a person familiar with the matter said, asking not to be identified discussing private information.

Evergrande has already contacted some banks and trusts to request deadline extensions, four people said. It’s unclear how many of those discussions have led to agreements and whether the company intends to delay payments to bondholders.

ZH: Mobs Of Angry Evergrande Homebuyers And Employees Begin To Protest

There are more than 1.5 million Evergrande customers who put down payments on yet-to-be-completed condo building projects. This week's protest could be an ominous sign of more social unrest to come.

China's economy is already poast the limit of its credit bubble, with the printer the only thing keeping the economy out of recession. Which is why economists think the credit cycle must be bottoming. The alternative is recession.

ZH: China Credit Growth Finally Bottoms, Setting Stage For Powerful Credit Impulse Bounce

We maintain our view that broad credit growth could bottom in September and rebound modestly in 4Q on the back of a low base and possible acceleration of govt. bond issuance (central + local govt. bonds) – there are Rmb3.7trn remaining quota for Sept.-Dec. (vs. Rmb2.7trn for the same period last year), which suggest a monthly net issuance of ~Rmb900bn in the coming months.

In the NDRC press conference on Wednesday, policymakers also pledged to ramp up preparation work for infrastructure projects related to local govt. special bonds for the rest of this year and 1H22. In our view, this means policymakers will likely push for faster local govt bond issuance in the coming months and front-load next-year's govt. bond quota in 1H22, to arrest downside risks to growth.

One can only chuckle at people who still think China is some kind of ongoing economic miracle. On relative terms it may or may not be in better shape than the U.S., but the idea that either country is a good place to be investing right now, that their currencies or bonds are worth owning, is lunacy.

Caixin: What Does China’s Consumption Slowdown Mean for the Economy?

When considering Chinese economic news, remember that the country has banned negative interpretations from the news. It isn't a blanket ban on bad news, but for instance there aren't as many Evergrande stories in the Chinese press these days. A few years ago, I'd have a sea of articles and blog posts to sift through. Today, I'd more like finding a needle in a haystack, with months old articles coming up as top search results.

Taper This! 2014 Rhymes: Evergrande Goes Down, Real Estate Price Controls, Cash Moving into Stocks

Reuters: China Evergrande bonds suspended as prices slump

Bonds issued by heavily indebted developer China Evergrande Group plunged on Monday on growing investor worries over the company's ability to pay its debts, prompting China's stock exchanges to halt trading.

The Shanghai Stock Exchange said in a statement that it had temporarily suspended trading in China Evergrande Group's 6.98% July 2022 corporate bond following "abnormal fluctuations." The exchange had also suspended trading in the bond on Friday.

Sanya implements price controls on real estate: no price hikes for 1 year. iFeng: 楼市大降温！三亚出手了：商品房备案价格1年内不得上调 影响有多大？

It is reported that the "Notice" proposes that for projects that have been filed before September 1, 2021, the prices of unsigned properties must be re-filed, and the overall average filed price shall not exceed the recent online price of the project. For commercial housing projects that have been approved for price filing, in principle, the filing price cannot be raised within one year.

Experts interviewed by China Securities Journalists believe that "hands-on" sales price filing is an important means of controlling housing prices. The price increase channels of commercial housing are basically restricted through controlling price filing, which will help reduce false fires in the property market and return the market to stability.

East Money: A股罕见万亿成交背后：炒楼资金悄然“转场”股市

On September 1, the Securities Times reported that the client margin of a leading brokerage firm suddenly increased by nearly 5%. In the past four trading days, the increase was nearly 10%, which aroused widespread concern in the market. (For details, please poke: The margin of top brokerage clients has soared, and the super market is coming? 1.7 trillion funds are surging, and the popular track has plummeted. ) Behind the soaring margin is the sudden increase in hot money in the market. According to the analysis It is believed that there are three sources of hot money, namely the primary market and the bank.Financial management , and the most important source-the property market. 　　

Why do property market funds flow into the stock market? What is the scale? How sustainable...With these questions, we visited. 　　

"A lot of millions of dollars around me have entered the market" 　　

"The property market capital flows into the stock market situation does exist, around me a lot of one million of the funds are coming onto." Laolv is a veteran real estate investors, too many sets of real estate operations in Shenzhen for 20 years, currently quite good assets He told reporters that many of his friends who originally invested in real estate have entered the stock market this year.

Back in April 2014, with the taper underway for 4 months: Rumored Mass Death of Companies in Xiaoshan District of Hangzhou If Banks Collect on Debts; Government Tells Banks to Sit Tight or Leave. By October, Liaoning's economy was going down the tubes: Liaoning Sounds Warning on Chinese Economy. Coincidentally, the Chinese government was engineering a stock market bubble that would blow up in May 2015. In August 2015, the central bank gave up defending the yuan and let it depreciate.

History doesn't repeat, but it does rhyme. The wheels are wobbling on China's economy and the Federal Reserve hasn't even announced its taper yet, let alone started it. China has all but banned reporting bad news about the economy.

Embrace the fog of information war. Ursus Major rises.

Investment Banks Say Buy Buy Buy Evergrande

乐居财经: 六大投行力挺恒大：降负债超预期 目标价23港元

Let's take a look at the views of these top big players:

Deutsche Bank: Evergrande’s large, high-quality land bank and strong execution will ensure that it completes its 800 billion internal control sales target. It is expected that at least half of the 130 billion war investment will continue to cooperate. This adjustment brings a good opportunity to increase its holdings.

Lyon: Evergrande has formulated a clear three-year debt reduction plan. Coupled with the separation and financing of properties and automobiles, it is believed that the effect of debt reduction will far exceed market expectations. The stock price adjustment has brought investors a good opportunity to buy bottom.

JPMorgan Chase: The market has overreacted to the rumors. It is expected that Evergrande will reach a consensus with strategic investors for an extension. The current valuation is very attractive.

DBS: The sharp correction in the stock price is mainly due to short selling. Evergrande’s strong sales performance, coupled with the potential benefit of renegotiation with strategic investment, will trigger short covering and a sharp rebound in the stock price.

Galaxy Lianchang: The separation and listing of Evergrande properties and automobiles will drive the net debt ratio to drop by 50%. Coupled with strict control of land acquisition, it is expected that Evergrande's net debt ratio will drop significantly below 100% in 2021.

Huatai Securities: Evergrande’s strong sales and collection performance, the spin-off and listing of automobiles and properties are expected to bring about 50 billion cash flow, and the financial status will be further protected.

Evergrande Under the Radar

Markets outside of Hong Kong seem to be ignoring this news.

FT: Evergrande bond trading halted on reports of cash crunch

Trading in onshore bonds of China Evergrande, the world’s most indebted developer, was halted after reports it was seeking government help to stave off a cash crunch caused the price of its shares and debt to tumble.

Shanghai’s stock exchange suspended trading in Evergrande bonds for half an hour on Friday morning, citing “abnormal fluctuations”. Their prices plunged from just under Rmb90 ($13.19) to finish trading at Rmb74, compared to their par value of Rmb100.

Evergrande’s shares and debt prices dropped after a letter, purportedly from the company, circulated on Chinese social media on Thursday requesting support for a previously planned reorganisation from the provincial government in Guangdong, where Evergrande is based.

I searched and saw a link broken for news, but this came up from Sina: 中国恒大集团：截至2020年6月30日现金余额人民币2046亿元

China Evergrande Group: As of June 30, 2020, the cash balance is RMB 204.6 billion

Reuters: Evergrande's too-big-to-fail bind comes to a head

Evergrande beseeched officials in its home province of Guangdong for assistance with a so-called back-door listing, according to a copy of the Aug. 24 letter, whose authenticity was confirmed by Reuters sources. The idea, first proposed as part of an October 2016 restructuring, was for subsidiary Hengda to combine with a publicly traded state developer. If the deal doesn’t happen by January 2021, a group of investors can demand repayment of some 144 billion yuan, or about $21 billion, all of Evergrande’s cash as of June 30.

The letter suggests a private sense of concern that Evergrande rarely exhibits in public. Chairman Hui Ka Yan often provides a helping hand to Beijing, supporting national goals such as poverty alleviation, even as its own debt load has surpassed $100 billion. Evergrande shares tumbled by as much as 6% on the news. S&P Global cut its outlook on the credit rating to negative from stable. The Shanghai Stock Exchange temporarily suspended trading in two of the company’s bonds on Friday.

Evergrande Getting Bigger, But Is It Too Big Too Fail

There is an ad for Verizon mobile service in the U.S. with a technician walking all over asking: "can you hear me now?" I imagine after each deal Evergrande makes, it places a call to Beijing and asks: "am I too big to fail now?"

Bloomberg: Evergrande Pays 10 Billion Yuan to Lift Shengjing Bank Stake

Evergrande Real Estate Group Ltd. has agreed to buy Shengjing Bank Co. China-traded shares worth 10 billion yuan ($1.54 billion), extending a shopping spree by the Chinese developer facing mounting debt.

...The firm has become the most indebted of 198 listed Chinese real estate developers, Bloomberg-compiled data show. There is a 6.2 percent probability it will miss payments in the next 12 months, up from 1 percent a year ago...

Is Evergrande TBTF?

What do you do when you're insolvent and headed for bankruptcy? Pursue TBTF status.

Bloomberg: Evergrande May Have Become Too Big to Fail, CreditSights Says

Evergrande Real Estate Group Ltd., the Chinese developer that’s been on a debt-fueled buying spree in the past year, may be too big to fail, according to research firm CreditSights.

A default by Evergrande, China’s largest developer by assets, could "wreak havoc among the banks and cause social unrest among its employees and customers," Singapore-based CreditSights said in an April 13 report.

“From a fundamental standpoint, we remain wary of the developer’s high leverage and shareholder-friendly strategies,” according to the report. “However, the company has grown so large that it may be too big to fail,” CreditSights said, explaining its decision to maintain a market-perform recommendation on the company’s series of bonds.

SCMP: Languishing in Hong Kong, property giant Evergrande taps share market in China

Hong Kong-listed Evergrande Real Estate, China’s second-largest residential developer has bought a stake in a Shanghai-listed developer and is circling a Shenzhen-listed real estate firm, in signs that the Chinese property major is exploring options in the country’s A-share market.

In a statement filed to the Shanghai Stock Exchange on Thursday, Langfang Development, a Langfang city-based state-owned developer, said Evergrande had acquired 5 per cent of its stake for 291 million yuan (HK$348 million).

...Meanwhile, mainland property news portal Guandian.cn reported, citing several sources, that Evergrande is taking over control of another state-backed developer, China Calxon Group, which is listed in Shenzhen.

Chinese coverage at EO: 恒大有意收购A股房企嘉凯城

Prior coverage:
From 2012: Citron says Evergrande is insolvent
From 2015: Short-Seller Investigated in Hong Kong
Evergrande's Potemkin Loans
Chinese Banks Bailout Evergrande

Evergrande's Potemkin Loans

Mingtiandi has the inside scoop on Evergrande's recent credit line: WHY THE NEW YORK TIMES IS WRONG ABOUT EVERGRANDE’S $16B “LIFELINE”

The industry insider clarified that the key point to understand is the meaning of a “line of credit” in this context. At this point none of the banks have loaned any money to Evergrande, or even agreed to loan the developer any cash.

“What the banks have done, is agreed to consider loaning cash to Evergrande, or to one of its projects, if they come up with a worthwhile proposal that appears creditworthy,” the executive pointed out (after making it clear that they had no direct knowledge of this particular case).

...The bank has no particular reason to sign a partnership agreement or offer a line of credit to Evergrande if there is no actual transaction taking place. However, if a major customer that happens to be one of China’s ten biggest real estate developers asks for a meaningless agreement as a favour, the bank also doesn’t have a lot of reasons to not go along with the public relations maneuver.

So it turns out Chinese Banks Did Not Bailout Evergrande.

Short-Seller Investigated in Hong Kong

Yesterday I posted Chinese Banks Bailout Evergrande and linked to an older post from 2012: Citron says Evergrande is insolvent, saying that Citron may be proved correct.

Turns out Citron is on trial.

Tribunal begins hearing case of short-seller who alleged developer Evergrande was insolvent

A Hong Kong tribunal started a preliminary hearing on Wednesday involving the head of US short-seller Citron Research over allegations that Citron published a “false and misleading” report about China’s fourth-biggest developer, Evergrande Real Estate Group, in 2012.

The hearing, in the Securities and Futures Commission’s first such action against activist short-selling firms, coincides with fresh signs that heavily indebted Evergrande has become a target as global investors become increasingly worried about pressure on Chinese developers’ cash flow in the wake of peer Kaisa Group Holdings’ offshore debt defaults and the industry’s struggle to overcome a serious glut, particularly in third and four-tier cities where Evergrande has a strong presence.

Chinese Banks Bailout Evergrande

Update: It was a Potemkin bailout.

Chinese Developer Evergrande Gets $16 Billion Lifeline Amid Slump

Evergrande said on Tuesday that since February, it had secured new credit lines totaling 100 billion renminbi, or $16.2 billion. Those included a new, 30 billion renminbi commitment on Monday from the Bank of China, which regards the developer as “its most important bank-wide long-term partner,” Evergrande said in a news release.

...Analysts said the support from the banks — which also include the Agricultural Bank of China, Postal Savings Bank of China and the privately controlled China Minsheng Bank — would provide temporary relief but would fall short of addressing the company’s deeper problems.

Mounting debts and slumping sales “are fundamental challenges that can’t be resolved short-term by government’s bailing them out on ‘too big to fail’ pretense,” said Junheng Li, the head of research at JL Warren Capital in New York.

“The company has been under financial distress for a long time,” she added.

From 2012: Citron says Evergrande is insolvent

Citron may be ultimately proved correct. In that post I highlighted one of the warnings signs on Evergrande: the founder was spending a lot of money trying to buy a championship for his Guangzhou soccer club. Vanity projects (along with mega projects, world's tallest skyscrapers, etc.) can be signs of a looming top for an individual, company or nation. He wasn't worried about blowing money on soccer in 2012, but today the firm is fighting for survival.

While Evergrande has received a lifeline, it's worth noting that Kaisa's debt levels exploded about 6 months before the firm defaulted.

Evergrande Hits Annual Sales Target in November

Evergrande is the first developer to hit its annual sales target.

iFeng: 恒大提前一月完成年度销售目标 单月同比增近9成

October Home Sales Increase for Developers; Sales Chart

iFeng: 10月31家房企销售额环比升13.9% 连续3个月增长

This is the table from the article. On the left is the developer names. Vanke is the first on the list. The final line is the total for the 31 developers.

The six columns from left to right are: October Sales (100M yuan); MoM change; YoY change; Cumulative Sales through October (100M yuan); Cumulative YoY change; Sales Target Completion Rate.

Falling Yuan Socks Debtors; Developers in the Crosshairs

China can't have a financial crisis because China doesn't borrow from foreigners. Except Chinese do borrow heavily from foreigners.

Yuan Takes Chinese Corporate Profits Down With It

Tencent Holdings Ltd. TCEHY -0.24% said in August that foreign-exchange losses were the main reason for a sharp jump in financing costs to 354 million yuan in the second quarter, compared with net financing income of 14 million yuan a year earlier. The Internet conglomerate in April completed a $2.5 billion bond sale in the U.S. Tencent's overall second-quarter profit rose 59% to 5.84 billion yuan. Tencent declined to comment for this article.

The numbers aren't going to cause a major crisis, but some industries are more at risk than others.

March 2014: Chinese developers seek alternative financing as investors grow wary

As of March 15, Chinese developers had issued 15 U.S. dollar bonds raising $7.1 billion so far this year, compared with 23 issues that raised $8.1 billion in the year-earlier period.

"That said, quite a number of developers have demonstrated the ability to access alternative markets, such as the offshore syndicated loan markets as another means of raising capital," said Swee Ching Lim, Singapore-based credit analyst with Western Asset Management.

September 2014: China’s Property Slump Spurs Record Loans to Builders

Cash-strapped Chinese developers are borrowing a record amount in the offshore loan market this year, adding to the highest debt loads since 2005.

Homebuilders in the world’s second-largest economy got $5.9 billion from foreign banks, up 39 percent from the same period last year, according to data compiled by Bloomberg. Builder debt has soared to 128 percent of equity, the highest since 2005, according to a Bloomberg Intelligence gauge of 84 companies.

......“Higher leverage on the balance sheet will give developers a higher financial burden,” said Agnes Wong, credit strategist at Nomura Holdings Inc. in Hong Kong. “That means that if presales are not going as quick as they expect it can translate into trouble more easily than before.”

Chinese Property Developers' New Financing Tool Raises Red Flags

Chinese property developers are increasingly raising funds through a method that some analysts say makes their debt loads look lighter than they are.

......Among their advantages to issuers, they can be treated on the balance sheet as equity, or a hybrid of equity and debt, rather than debt. That is because the payments are made at the discretion of the company, so they are considered dividends rather than interest payments.

......Among the developers, analysts highlighted Guangzhou-based developer Evergrande as relying most heavily on perpetual securities. Evergrande's leverage would jump to 248% from 90% if the securities were classified as debt, Citi Research says.

Going back to the March 2014 article above:

Beijing Capital was the first Hong Kong-listed developer to issue dollar senior perpetual capital securities last year, an equity-like security that does not dilute existing shareholders.

Higher debt levels, hidden debt, and growing exposure to currency risk at precisely the wrong time. Looks like some good candidates for a short-seller.

Chinese Developers Go Commercial

Chinese developers are focusing on commercial and retail space in a search for profits. Whether that is a good idea is debated, as Li Kashing recently sold out of retail: Li Ka-shing Sells 25% Stake In Retailer A.S. Watson To Temasek. In the case of Evergrade, the push include a big expansion into cinemas.

Evergrande Deploys 500 Barco Digital Projectors in New Cinema Chain

Evergrande Real Estate Group (3333.HK), one of the ten largest real estate developers in mainland China, is expanding its business to the cinema industry. In an initial phase, the Evergrande Cinema Line is building 77 cinema complexes in residential neighborhoods across the country, five of which are already operational. To equip the theaters with the latest digital cinema projection technology, Evergrande is teaming up with digital cinema leader Barco, who will provide over 500 of its 2K digital projectors, including the DP2K-32B and DP2K-20C units.

Evergrande Cinema Line Management Co., Ltd. is a wholly owned subsidiary of Evergrande Real Estate Group specialized in cinema investment, operation, and management. Relying on the Group’s commercial and residential developments and urban complex projects, the company is constructing first-class, fully digital cinema complexes across 22 provinces, autonomous regions and direct-controlled municipalities in China. Five theaters have already gone into service. Evergrande Cinema Line plans to build another 30 theaters with more than 210 screens in 2014, toward a total of more than 150 theaters and 1,100 screens by the end of 2016.

恒大分兵商业地产

If you are the retail industry practitioners, there may be Hengda recent recruitment advertisements hit.

Recently, Hengda Business Group is for its supermarket companies, department stores and cinema companies to recruit staff. Hengda official website, the Hengda Business Group Corporation is a wholly owned subsidiary of Evergrande Group, Evergrande Real Estate Group is responsible for operational management in over 130 major cities in more than 300 commercial projects. Commercial projects covering a variety of types of business forms Dishang community, business center, Hengda Studios, large centralized commercial, commercial complexes, are currently managing a total business area of ​​operations over two million square meters.

Hengda said Hengda commercial business group with a total area of ​​management operations will more than 4,000,000 square meters, total assets reached 100 billion business.

Insiders said that the retail industry for Evergrande residential project to upgrade its facilities, construction of urban commercial complex into operation speed, but may also bring new challenges.

Pull the mall with cinema

If Wanda Commercial Plaza with cinema pull Hengda wants to use theater leveraging community mall.

Hengda blueprint for commercial real estate outlook is this: it is located in Chengdu's 10 large commercial complex projects and more than 130 projects will be opened Hengda Studios operations, coupled with continued construction of community business projects have been put on the market, The total area of ​​commercial business will Hengda Group management operations will more than 4 million square meters, total assets reached 100 billion business.

In January this year, Evergrande Studios first taken a substantial step, namely the construction of four small mall with a cinema in Zhongshan, Xi'an, Yueyang, Danzhou four cities of the project. Future projects will cover Hengda theaters nationwide 17 provinces and autonomous regions, and total more than 150 theaters.

"Hengda Studios" is a small four-storey commercial building, set in a residential area. Which is 1-2, 3-4 checkerboard floor shops are Hengda theater, with a total area of ​​10,000 to 20,000 square meters. Studios hope to provide life support and entertainment services for the community and surrounding residents. Official website, the business model known as Hengda this community theater mode. Merchants department of Hengda multiple items are explained, "is actually a community theater mall anchor stores."

Wanda Cinema regional company manager Chen, Hengda end of last year received an invitation, hoping to join Hengda Studios. Due to rapid expansion, Hengda also hope that Mr. Chen will coil around the yard of the hospital practitioners are introduced over.

Chen did not agree Hengda final offer. One reason is that he thinks Hengda want to bring theater to the mall traffic, the goal is not the operating theater itself, "not even to mention revenue requirements."

Followed by a slower rate of expansion than the plan. "Hengda introduced this year to open 25 Studios, next year to open 70." Chen said:. "But they (Hengda) in 2011 when he has said so."

According to incomplete statistics, the Economic Observer reported, in addition to the four open in January, Tatung, Liuyang, Yueyang, etc. Hengda Studios will be open in June. Meanwhile, in order to have the theater as a gimmick, the other floors Studios investment work is also in progress.

Hengda communities in four-tier cities, "are very difficult to open a convenience store to come here, not to mention theater," Chen believes that this kind of community theater is very difficult to survive.

However, there is a theater Studios have brought business to other merchants. A merchant Studios in Hengda, the person in charge of the Economic Observer newspaper said that the crowd Studios attraction to a certain extent, especially at night time viewing of popular, his shop would mainly rely on this time to make money.

Economic Observer newspaper reporters learned in a third-tier cities, Evergrande community houses more than 4000 units sold, plus the surrounding residential area of ​​population, the film area has formed a dense human settlements. However, the owners need to drive to the mall to watch movies from outside the two stations, the lack of supermarkets nearby convenience store.

According to the company's business management department official in an area Hengda introduced, only one form of community theater, cinema Hengda company will do more large-scale theater, the venue is a commercial complex in vivo in Hengda.

Department stores, supermarkets, amusement

As early as the first half of 2010 results conference, Xu Jiayin once said, Hengda the timely intervention of commercial real estate. The so-called "time" refers to wait Hengda have enough cash flow and scale of support.

Xu Jiayin said that when the four indicators have reached the industry's first, will put great efforts Hengda big commercial real estate. These four indicators are land reserves, construction area, sales area and sales amount. It was revealed that the expected timing of commercial real estate will come in the second half of 2011, the goal is a landmark urban complex to the main capital cities and developed cities.

2011, Hengda Liaoning Fushun city government side won land, the construction of the first called "Hengda Plaza," a large urban complex project, covering shopping centers, malls, hotels, office buildings and other formats, including. Statistics show that this year, the company set up a business group. Since then, the company has to create "Hengda Square" in Guilin North Rail Station and other places. There was propaganda display, Hengda Group's proprietary commercial brand merchandise Hengda Hengda SPA water will, Hengda KTV, Hengda Studios, video game Hengda Hengda health club, will further boost Hengda Group orderly development of commercial projects.

Today, these four indicators are still some had not reached the ideal Xu Jiayin, but Hengda tourism complex project and landmark commercial complexes have moved into the investment period, including Chengdu, Ningbo and other 10 large commercial complex project .

Some media said Xu Jiayin, announced in an internal meeting to build "an upgraded version of Wanda Plaza." To this end, Wanda Hengda also learn to set up department stores, supermarkets and amusement management company management company in the business group, fully into the retail industry.

According to the official website of expression Hengda Hengda department store business area of ​​30,000 square meters, relying on commercial projects nationwide Hengda and commercial complex project, to build a strong brand Chinese department store chain; while Hengda supermarket is expressed as an operating area of ​​1000-8000 meters, as the main life support in Evergrande projects and large-scale commercial projects in 2015, the number of supermarket stores nationwide Hengda will more than 300.

Hengda a central region of the company's business management department, said: "Hengda department will then enter the commercial complex, which is currently in some remote location supermarkets residential projects have been stationed." The source, community and city commercial complex projects Investment by the regional companies, business groups are responsible for guiding, assisting operators commercial projects.

Jones Lang LaSalle head shops in Guangzhou and Shenzhen Lin Shisong opinion, these moves seems to replicate Wanda mode. "Wanda shop business model is in the point of sale of residential, quick return of funds which, through their own stores, but also quick access to the commercial part of the operational state."

Or in Fushun Hengda Square. Last October, the project signed a strategic cooperation agreement with the merchant. In addition to the local shopping center in Northeast New Mart, as well as Watson's alleged child king and other brands. Hengda theaters, Hengda KTV, SPA water will more than Hengda Hengda own retail brands are among them.

Although it is a landmark urban complex, but Hengda project, after all, in the four-tier cities. North China Hengda a company's business management department source said: "own retail brand better meet their rate of expansion."

Sale and leaseback

Hengda came in for its commercial companies recruiting at the same time, an unconfirmed news that some of the new project is not located Wanda main department stores.

Under the impact of the electricity supplier, department stores, supermarkets and other formats situation. Publicly available data, this year April 50 national key large retailers retail sales fell by 7%, which is the second year of negative growth in retail sales in January-February, retail sales fell reappears; first quarter of this year, 50 key large retail business retail sales grew only 0.1 percent, a sharp slowdown in the growth rate of 9.1 percentage points.

Wanda department store in a former executive opinion, Hengda has a wealth of real estate resources, but it is a necessary, but not self-sufficient department condition. "Only to find the right department store business model, so they are not to become engulfed department cash flow business."

Hengda whether there is sufficient funds to support the retail industry? 2013 performance data show that Evergrande in 2013 benefited from the sales return, the net debt ratio decreased by 14.7 percentage points, down to 69.5%. But S & P, Moody's and other rating agencies still think Hengda debt leverage ratio is the highest real estate developers one. The reason is that the issue of 25 billion last year Hengda perpetual debt. On the financial deal with the perpetual debt instruments are included in the permanent capital, counted as an asset rather than net debt. However, debt sustainability should not ignore the nature of the debt rating agency said.

Time data display, Evergrande had cash 53.65 billion, but more than the cash from borrowings. 2013 year net increase of 48.55 billion borrowing, 108.8 billion at the end of the loan balance.

Seen in this capital position, fully involved in the retail industry is the existence of pressure.

Community theater functions are not limited to attract customers, but also to attract investors. Currently, a number of shops have been divided Hengda Studios sale or whole sale, sale and leaseback agreement with the owners. One Studios project had played "five-year return of 50% stable, consistent returns 350 yuan a day" conditions.

Hengda Studios close to sources, because the shops Studios has signed a contract with the investors, only a fixed rent, fixed period of foreign leasing, investment process is quite passive.

Lin Shisong introduction: "sale leaseback is in fact selling rate of return may hide some of the handling of financial skills in order to achieve the agreed level of return on rent commercial projects may exceed the average market rent levels because this part out of the high rent. assets assessment project may do more than the estimated tens of millions. "

Linshi Song said, real estate developers to do the retail industry, there are more successful Li Ka-shing. Hutchison Whampoa company its all PARKnSHOP, Watsons and other retail companies, through the spin-off, the financial pressure is transferred to the capital markets.

Not only are studios, urban complex project commercial street shops communities is also currently exploring the sale and leaseback agreement with the investors needs.

A senior business investment advisers, is leased to the seller if the sale and leaseback own retail companies, these retail companies is the "collaborative unit", together the asset value of commercial property valuation is high.

Wanda stores these former executives believe that the domestic department stores are still exploring, trial and error stage, but homogeneity is very serious, not only the management, service delivery, and even engineering are converging. "If you do not have to creatively explore Hengda new consumer needs and provide new and different with the general services department, I think, it is not the department stores and other retail industries do a good time." The executive said.