(Bloomberg) -- China Evergrande Group's aggressive discounts failed to boost property sales in August, underscoring how the debt-laden developer's efforts to raise cash are squeezing profitability.
The company's average selling price slid 11.5% in August from a month earlier to the lowest since July 2016, according to Bloomberg calculations based on a Friday filing. Contracted sales, including those to suppliers and contractors to offset payments, dropped to 38.1 billion yuan ($5.9 billion), 26% lower than a year ago.
The world's most indebted developer has become one of the biggest financial worries in China, given its teetering pile of $305 billion in liabilities to banks, shadow lenders, companies, investors, vendors and home buyers. Evergrande's shares and bonds have plummeted to levels that suggest investors are bracing for a potential default.
Shares of Evergrande opened as much as 2.3% lower in Hong Kong, before climbing 1% as of 10:21 a.m. The stock has lost about 74% this year. Its dollar bond due 2025 was indicated at 25.2 cents on the dollar Monday morning, after falling 10.9 cents last week, Bloomberg-compiled prices show.
Evergrande last week warned that it risks defaulting on borrowings if its efforts to raise cash fall short. Regulators in Beijing last month urged the company to resolve its debt woes in a rare public rebuke.
| Three Red Lines Requirement | Evergrande as of June 30 |
|---|---|
| Cash to short-term borrowing ratio of at least 1 | 36% |
| A 100% cap on net debt to equity | 100% |
| A 70% ceiling on liabilities to assets | 81% |
Despite selling stakes in some of its prized assets and offering steep discounts to offload apartments, Evergrande reported a 29% slide in profit for the first half, with its mainland Hengda Real Estate and electric vehicle unit reporting losses. Its gross margin almost halved to 12.9% from six months earlier, the lowest since at least 2008.
Regulatory tightening and the latest Covid-19 outbreak are clouding the sales outlook for Chinese residential property developers, Bloomberg Intelligence analysts wrote last month. Home prices grew at the slowest pace in six months in July.
Added to that, Evergrande's vendors have suspended work on some projects due to unpaid bills, the company said in its earnings report. “The group will do its utmost to continue its operations and endeavor to deliver properties to customers as scheduled,” it said.
In an effort to soothe home buyers, Evergrande on Wednesday pledged to deliver on its housing projects, with billionaire Hui Ka Yan describing the directive as a “military order.”
©2021 Bloomberg L.P.
With assistance from Bloomberg
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