After more than a year of suspension of trading on the Hong Kong Stock Exchange, on the evening of July 17, China Evergrande reissued its 2021 annual report, 2022 semi-annual report and 2022 annual report one after another, and the outside world finally got a glimpse of its financial situation. Although the market has long expected Evergrande’s liabilities and losses, when a series of figures really come into view, it is still staggering.
According to the performance report disclosed by China Evergrande, the company’s net loss in 2021 and 2022 was 686.22 billion yuan and 125.81 billion yuan respectively, and the net loss in two years totaled 812.03 billion yuan. At the same time, China Evergrande has fallen into an insolvent situation. The total value of its assets held at the end of 2021 and 2022 was 2.11 trillion yuan and 1.84 trillion yuan respectively, and the total amount responsible was 2.58 trillion yuan and 2.44 trillion yuan respectively.
According to Wind data statistics, in all 110 class A share listed housing enterprises, in 2021, 23 housing enterprises with negative net profit suffered a total loss of 118.16 billion yuan; in 2022, 35 class A share listed housing enterprises with negative net profit suffered a total loss of 122.57 billion yuan. Dozens of housing enterprises lost far less than China Evergrande.
"The company takes stable management and risk management as its top priority, and actively promotes the work of the guaranteed building with the greatest efforts. It has won the understanding and support of various parties, including local governments, upstream and downstream enterprises." China Evergrande said in its financial report that the company achieved full resumption of work on 732 guaranteed building projects in 2022, and a total of 301,000 sets were handed over throughout the year. At the same time, Evergrande Automobile achieved the mass production and delivery of the "Hengchi 5" model.
Looking to the future, China Evergrande further stated that it will make every effort to ensure the steady and orderly progress of key work such as "Baojiao Building", do a good job in the sustainable operation of new energy vehicles, property services and other sectors, explore the efficient disposal and effective revitalization of the company’s core assets, and steadily promote risk mitigation.
On the one hand is the beautiful vision described in the financial report, and on the other hand is the huge financial "black hole" in reality. The future direction of China Evergrande is not only related to the interests of thousands of enterprises in its entire ecological chain, but also affects the hearts of all parties. According to recent news from China Evergrande, the company will hold a number of restructuring debt holders’ meetings on July 24-25, and overseas workouts may usher in clear results.
Debt at the end of 2022 is about 2.44 trillion yuan
From the perspective of income, in 2021, China Evergrande achieved revenue of 2500.1 billion yuan and gross profit of 18.45 billion yuan. The total net loss for the year was 686.22 billion yuan, of which the operating loss was 113.75 billion yuan, and the losses related to land recovery, impairment losses of financial assets and other non-operating losses were 180.20 billion yuan.
In 2022, China Evergrande realized revenue of 2300.7 billion yuan and gross profit of 24.99 billion yuan, from negative to positive. The total net loss for the year was 125.81 billion yuan, of which the operating loss was 43.39 billion yuan, and the loss related to land recovery, impairment loss of financial assets and other non-operating losses were 69.37 billion yuan.
In terms of assets and liabilities, as of the end of 2021, China Evergrande held total assets of 2.1071 trillion yuan, net assets – 473.05 billion yuan; total liabilities were 2.58015 trillion yuan, excluding contract liabilities of 974.35 billion yuan was 1.6058 trillion yuan, of which loans 607.38 billion yuan, trade accounts payable and other payables 893.34 billion yuan (including 585.01 billion yuan payable for engineering materials), other liabilities 105.09 billion yuan.
As of the end of 2022, China Evergrande held total assets of 1.83834 trillion yuan, net assets – 599.07 billion yuan; total liabilities of 2.43741 trillion yuan, excluding contract liabilities of 721.02 billion yuan is 1.71639 trillion yuan, of which 612.39 billion yuan, trade accounts payable and other payables 1.00226 trillion yuan (including engineering materials payable 596.16 billion yuan), other liabilities 101.74 billion yuan.
It can be seen that trade payables and other payables account for the majority of China Evergrande’s external liabilities, reflecting China Evergrande’s arrears to upstream and downstream suppliers, contractors and partners during the real estate development process. At the same time, as of the end of 2021 and 2022, China Evergrande’s cash assets were only 5.435 billion yuan and 4.334 billion yuan respectively.
Overseas workout or welcome new progress
Regarding the overseas workouts that are concerned by all parties in the market, China Evergrande also mentioned in the performance report.
"In line with the principle of respecting international restructuring principles, treating the existing rights and demands of all creditors with justice and fairness, the company and its advisory team have continued to conduct in-depth and detailed consultations with overseas creditors, and have carried out multiple rounds of communication on the details of the restructuring plan, and steadily advanced the formulation of the overseas debt restructuring plan." China Evergrande said that with the support of overseas creditors, the company obtained the approval of the Hong Kong High Court to postpone the liquidation petition hearing.
On the night of the release of the performance report, China Evergrande simultaneously disclosed the latest news of an overseas workout: from July 24 to 25, 2023, multiple hearings will be held in the High Court of Hong Kong, the Grand Court of the Cayman Islands, and the High Court under the Eastern Caribbean Supreme Court to vote on the overseas workout plan disclosed by China Evergrande on March 22 this year. If it fails, Evergrande is likely to face forced liquidation.
Since March 21, 2022, China Evergrande shares have been officially suspended from trading. At present, China Evergrande shares continue to be suspended. According to the relevant regulations of the Hong Kong Stock Exchange, the Hong Kong Stock Exchange can order listed companies that have been suspended for 18 consecutive months to delist. There are still two months left for China Evergrande.
Auditors remain "unable to comment"
It is worth mentioning that in the overseas workout plan in March, the unaudited financial information disclosed at that time showed that as of the end of 2021, China Evergrande’s total liabilities were 1.898 trillion yuan, a gap of nearly 700 billion yuan from the latest 2.58 trillion yuan.
And even with such a huge financial "black hole", after replacing the original auditor, PricewaterhouseCoopers (i.e. PwC), the new auditor, Shanghai PricewaterhouseCoopers, still believes that there are a number of uncertainties in China Evergrande’s continuing operation, and it cannot obtain sufficient audit certificates for the comparison of the opening data. Therefore, it has issued "no opinion" reports on its 2021 and 2022 annual reports.
"A large and high-quality land bank is a solid foundation for the group to guarantee the property, gradually pay off debts and resume normal operations." Even after handing over the huge loss and unaudited "books", China Evergrande’s statement in the earnings report appeared confident.
Data show that by the end of 2021, China Evergrande had a land reserve of 260 million square meters and participated in 93 old renovation projects, including 66 in the Greater Bay Area (39 in Shenzhen) and 27 in other cities; by the end of 2022, China Evergrande had a land reserve of 210 million square meters and participated in 79 old renovation projects, including 55 in the Greater Bay Area (34 in Shenzhen) and 24 in other cities.
Policy development promotes stable and healthy market development
Yan Yuejin, Chief Research Officer of E-House Research Institute, believes that China Evergrande’s "insolvent" is not only related to its own operational problems, but also to some extent related to the adjustment facing the industry. For the real estate industry, many problems take a long time to effectively resolve.
In fact, since the fourth quarter of last year, relevant departments have made concerted efforts from both the supply and demand ends to launch various support and relief policies. Many research opinions believe that although the current real estate market recovery is still facing many disturbances and uncertainties, the trend of bottoming is gradually emerging. With the combined efforts of the policies of both the supply and demand ends, it will continue to create favorable conditions for the overall risk resolution of high-quality real estate enterprises and the industry, and will also play a positive role in protecting investor confidence and safeguarding the rights and interests of home buyers.
Zou Lan, director of the Monetary Policy Department of the People’s Bank of China, said at the press conference of the State Information Office recently that considering that the supply and demand relationship of the real estate market in our country has undergone profound changes, there is marginal optimization space for the policies introduced in the long-term overheating stage of the market in the past, and the financial sector will actively cooperate with relevant departments to strengthen policy research.