China’s Evergrande Group Reports Unprecedented $81 Billion Loss in Two-Year Span, Sending Shockwaves Through Property Sector

China’s largest indebted property developer, Evergrande Group, has revealed its long-awaited earnings report, disclosing a staggering combined loss of $81 billion for 2021 and 2022. The company’s financial earnings report, released on July 17, stated that it recorded a net loss of 476 billion yuan ($66.36 billion) in 2021 and an additional loss of 105.9 billion yuan ($14.76 billion) in 2022.

These significant losses were primarily attributed to write-downs of properties, return of land, losses on financial assets, and mounting finance costs. It is important to note that the reported loss represents a significant deviation from the net profit of 8.1 billion yuan recorded in 2020 when Evergrande’s operations were relatively stable.

The repercussions of Evergrande’s massive debt burden have reverberated throughout China’s property sector, which is a vital pillar of the country’s economy. The company’s struggles have led to defaults and unfinished homes, leaving suppliers and creditors in a precarious position.

Evergrande’s financial woes began when it failed to repay a debt of $148 million in 2021. In an attempt to compensate its suppliers and creditors, the real estate giant sold some of its assets and shares. However, it was unable to meet the demands of investors, resulting in a default. At that time, the company’s total liabilities amounted to $300 billion.

In the following year, Evergrande received an order from local authorities to suspend trading its shares on the Hong Kong stock exchange. This suspension was imposed pending the release of the long-overdue financial results and ongoing investigations into seized deposits. The indefinite suspension raises concerns about potential delisting if the shares remain halted beyond the 18-month threshold. The company is now restructuring and has confirmed that its shares will stay suspended.

According to the financial earnings report, Evergrande’s total liabilities have surged from $300 billion at the time of its default to $340 billion by the end of 2022. This increase represents a 23% rise compared to the previous year, highlighting the significant financial hurdles faced by the company. Moreover, the report indicated a substantial drop in revenue, with Evergrande’s earnings plunging by 55% to 230.1 billion yuan in 2022, compared to the more prosperous period of 2020.

In contrast, the company’s total assets experienced a decline of 20%, amounting to 1.8 trillion yuan. This drop in assets further emphasizes the financial strain faced by Evergrande and its ongoing struggle to maintain stability amidst challenging market conditions.

Importantly, Evergrande’s auditors, Prism Hong Kong and Shanghai Limited, refrained from expressing opinions on the company’s financial statements. The auditor cited insufficient audit evidence as the reason behind this decision, raising concerns about transparency and accuracy.

The reported losses align with analysts’ expectations, considering the decline in Evergrande’s contracted sales, which amounted to 443 billion yuan in 2021 and a mere 31.7 billion yuan in 2022, compared to 723 billion yuan in 2020.

As Evergrande grapples with its financial challenges, the company has been actively pursuing an offshore debt restructuring plan. It recently announced that hearings for the reorganizational schemes will be held in Hong Kong and the Cayman Islands, giving creditors the opportunity to consider and approve the proposed plan.