[Epoch Times October 31, 2021](Epoch Times reporter Wu Minzhou reported) China’s Evergrande Group and other large real estate companies have successively broke out of debt defaults, triggering global stock market turmoil. According to a Bloomberg report, as of October 29, 2/3 of the top 30 real estate developers ranked by the China Real Estate Information Group (CRIC) by revenue have stepped on the “three red lines” of the financing rules of real estate companies, fearing that More worries about debt default by real estate developers.
In order to avoid the bubble in the housing market, the CCP set out the “three red lines” of the financing rules for housing companies in August 2020, including the asset-liability ratio of real estate developers after excluding advance receipts of greater than 70%, net debt ratio of greater than 100%, and short cash. The debt ratio is less than 1, and the real estate enterprise must complete the adjustment in line with the “three red lines” within three years. At the end of the same year, the debt scale of the real estate industry and the borrowing ceiling were increased.
After the announcement of the control measures, real estate developers who got rich by “borrowing leverage” instantly faced a shortage of cash flow. According to Chinese media statistics, including Evergrande, Fantasia, and Sony Group, there were more than 300 real estate companies this year alone. Reports of poor management have jointly affected the steel and building materials machinery industries.
According to CRIC data, Evergrande Group, which has a debt of more than US$300 billion, and China Railway Construction Group, which is heavily indebted, have stepped on two of the “three red lines.” A total of 9 real estate developers, including Evergrande Group and Modern Land, broke their debt defaults this year.
Nomura Holdings analysts estimate that Chinese developers will borrow more than US$5 trillion in total when the economy is booming. This debt has almost doubled from the end of 2016, and it is also higher than the overall economic output (GDP) of Japan, the world‘s third largest economy, last year. The global market is preparing for a wave of defaults that may occur in China.
China’s leading real estate company Sunshine City also released its third quarterly report on the evening of October 28. In the first three quarters, Sunshine City achieved revenue of 41.333 billion yuan (RMB, the same below). The net profit attributable to shareholders of the listed company after deducting non-recurring gains and losses was RMB 86,701,400, a year-on-year decrease of 96.89%.
In the third quarter, many financial indicators of the company declined; revenue was 11.401 billion yuan, down 18.24% year-on-year; net profit attributable to parent was 919 million yuan, down 11.57% year-on-year; non-net profit was a loss of 1.752 billion yuan, down 274.27% year-on-year.
On the day Sunshine City released its third quarterly report, the company was downgraded by Fitch. Its long-term foreign currency issuer default rating (IDR) was downgraded from āB+ā to āB-ā, and the outlook was ānegativeā. Sunshine Cityās senior unsecured rating was downgraded from āB+ā to āB-ā and maintained āRR4ā Recovery rating. ā
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