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China home builders, suppliers issue spate of profit warnings as Evergrande woes bite

Stock MarketsJan 28, 2022 03:56AM ET
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© Reuters. FILE PHOTO: An aerial view shows the 39 buildings developed by China Evergrande Group that authorities have issued demolition order on, on the manmade Ocean Flower Island in Danzhou, Hainan province, China January 6, 2022. REUTERS/Aly Song/File Photo

SHANGHAI (Reuters) - A growing number of Chinese construction and decoration companies are writing off assets or issuing profit warnings as debt woes at China Evergrande Group and other property developers debilitate their suppliers.

More such disclosures are expected during the upcoming earnings season, putting pressure on Chinese authorities to do more to limit the contagion from developers' financial crisis and avert job losses.

Guangzhou Holike Creative Home Co, a furniture maker, became the latest company to disclose losses linked to Evergrande, which has racked up over $300 billion in debt, including 200 billion yuan ($31.44 billion) owed to suppliers via commercial paper.

Holike said in an exchange filing on Wednesday it expects 2021 net profit to slump as much as 60% from a year earlier, hurt by receivables to Evergrande that are unlikely to be collected.

In addition, China's property market downturn has dented the value of a company it acquired in 2020, resulting in impairment losses, Holike said, adding it has slashed business with Evergrande and is seeking claims.

Beijing Jiayu Door, Window and Curtain Wall Co also flagged risks this week, saying it turned in a loss of up to 1.4 billion yuan last year, thanks to receivables from Evergrande that are likely to go sour.

Earlier this month, Guangdong Pak Corp, a maker of lighting fixtures, said it forecast a 85%-90% drop in 2021 earnings, thanks to a jump in Evergrande-related impairment losses. And Shenzhen Wenke Landscape Co said it fell into the red last year due to Evergrande defaults.

Most China-listed companies will start reporting annual results next month, with more such disclosures expected, as dozens of Chinese suppliers have disclosed debts owed by developers like Evergrande. Some have already set aside provisions.

And despite some easing measures taken by the government to ease developers' liquidity stress and support the cooling economy, recent data suggests the problem will get worse.

Units of Shimao Group Holdings, Kaisa Group Holdings and Greenland Group were named and shamed this month in a list of Chinese companies "consistently overdue" on commercial paper payments.

And the total number of such delinquent firms jumped 26% in December from the previous month, according to the list compiler, the Shanghai Commercial Paper Exchange. [L1N2TS06Q]

Evergrande, the world's most indebted developer, is seeking a debt restructuring as it struggles to pay creditors, suppliers and investors in wealth management products.

Shanghai Trendzone Holdings Group, a residential decoration company, said recently it had filed 333 lawsuits against Evergrande and its subsidiaries, and the impact on earnings is unclear before legal rulings.

($1 = 6.3558 Chinese yuan renminbi)

($1 = 6.3613 Chinese yuan renminbi)

China home builders, suppliers issue spate of profit warnings as Evergrande woes bite

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