China's Evergrande Has A $81 Billion Hole From The Housing Collapse

Chinese property developer Evergrande has reported losses of $81 billion over a two-year period, revealing the financial impact of its 2021 default that triggered a crisis in China's property sector.

Evergrande, which is currently undergoing a restructuring process, disclosed losses of Rmb476 billion ($66 billion) and Rmb106 billion for 2021 and 2022 respectively.

Its revenues also dropped by half in 2021 to Rmb250 billion compared to the previous year. These financial results suggest that a housing market rebound is not imminent.

Evergrande's default had wider repercussions, causing a cash crunch throughout China's property sector. This crisis comes at a time when policymakers are already grappling with trade challenges and a slower-than-expected post-pandemic recovery.

The release of Evergrande's financial reports sheds light on the scale of the company's troubles, characterised by a lack of transparency and opaque negotiations with creditors.

The reports reveal that Evergrande's total liabilities increased from $300 billion at the time of its default to $340 billion by the end of 2022, highlighting the challenges faced by the company, the government, and investors in resolving the weaknesses of a sector that contributes to over a quarter of China's economic activity.

Trading in Evergrande's Hong Kong-listed shares has been suspended since March 2022, pending the release of the 2021 and 2022 financial results. If the shares remain suspended for 18 months, the company risks being delisted.

Under the proposed plan, international investors who lent around $20 billion to Evergrande are set to receive notes linked to shares in its Hong Kong-listed subsidiaries.

Other Chinese property developers, including Sunac and Kaisa, have also defaulted on their offshore debts. Kaisa recently faced a winding-up petition from a Singapore investor holding mainland debt.

Beijing has prioritised the completion of residential housing projects and has released a 16-point plan to support the sector, focusing on supporting high-quality developers that have not defaulted.

The Chinese government initially introduced leverage limits in 2020 to control the property sector, leading to a freeze on new funding and the subsequent cash crunch.

Hui Ka Yan, formerly China's richest man and the chairman of Evergrande, has faced pressure to sell his personal assets as part of the company's collapse. Prism Hong Kong and Shanghai Limited audited Evergrande after the resignation of previous auditor PwC.

Prism stated that there was "material uncertainty" regarding Evergrande's ability to continue operating, but it was unable to obtain sufficient audit evidence to provide a proper opinion.

Last August, Hong Kong authorities initiated an investigation into PwC and Evergrande over potential concerns related to the 2020 accounts of Evergrande Property Services, a subsidiary listed in the city.