China Evergrande Group, the country’s largest developer by sales, has become a poster child for the risks Chinese borrowers face as a deep economic slowdown and a clampdown on riskier lending spooks investors and spurs a rout in the country’s stock markets.
The company, which has been the victim of insider trading and another massive collapse, warned this week of a tough year ahead that could be even more difficult to handle than previously thought.
“The economic situation is not as good as we had expected … our net profit dropped,” chairman Wang Jianlin said at a press conference on Friday in Guangzhou, the city in southern China where Evergrande is based.
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Evergrande, whose shares have fallen 70% in the past year and hit a decade-low this week, is set to post a 90% fall in first-half profits on Monday.
It recently lost its credit rating and this week appointed veteran investment banker Ming Yang to lead the business as its new CEO, after its founder and chairman, Liang Gang, was kicked out for allegedly instigating the stock plunge and insider trading.
Wang, the company’s most-quoted executive, has been held in police custody since Monday and is not currently in office.
Wang, ranked by Forbes as China’s richest tycoon this year, said the past two years had been one of the worst times in Evergrande’s history.
“As a senior executive, it is our responsibility to maintain financial strength and stability to maximize investment opportunities for the company,” he said.
Tougher tightening from regulators and a slowdown in the property market could hamper the group’s expansion plans, Wang said.
He added that this year’s stock market plunge, China’s biggest in 25 years, had “taken a toll” on the company.
There has been a “dramatic decrease in real estate developers’ confidence”, he said.
The company is “not exaggerating” its full-year profits, which are expected to drop further.
Evergrande was briefly suspended from trading this week and called a press conference to clarify financial problems, but did not say what Wang, 51, was being investigated for.
A company spokesperson has said he was being questioned by the police on suspicion of “illegal conduct”.
Evergrande’s Shanghai-listed stock has plunged more than 80% in the past year, and is now the worst performing stock in the China A-share market.
The company, which owns golf courses and theme parks, is among the 24 top companies to see their share prices drop more than 90% in the past year.
Wang said his “darkest moment” as chairman had been earlier this year, after his efforts to buy shopping mall developer Shujao Shopping Centre failed to secure approvals.
“A successful property developer needs to develop nationwide; and for a lot of our development plan it had been unwise to invest in one or two locations,” he said.
The company was too concentrated on just one market, and had failed to “look for opportunities” to enter new markets and diversify, he said.
Evergrande owes more than $30bn in debt, almost half of it to the China Development Bank, another year-long effort by the company to raise cash from its flotation to repay debt.
Wang pledged to cut debt if the share price did not recover by the end of this year.
The company also said it was simplifying its complex structure to “further” comply with regulations.
Sending his entire wealth offshore to avoid paying Chinese inheritance taxes might not be the solution, however.
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