Chinese builders and suppliers issue series of profit warnings as Evergrande woes bite, Real Estate News, AND RealEstate

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SHANGHAI: A growing number of Chinese construction and decoration companies are writing off assets or issuing profit warnings as debt problems at China Evergrande Group and other property developers weaken their suppliers.

More such disclosures are expected in the upcoming earnings season, prompting Chinese authorities to do more to limit contagion from the developer financial crisis and avoid job losses.

Guangzhou Holike Creative Home Co, a furniture maker, has become the latest company to disclose losses related to Evergrande, which has racked up more than $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 that it expects 2021 net profit to fall 60% from a year earlier, hurt by claims on Evergrande that are unlikely to be collected.

Additionally, a slowing Chinese property market reduced the value of a business it acquired in 2020, leading to impairments, Holike said, adding that it had reduced its business with Evergrande and was seeking claims.

Beijing Jiayu Door, Window and Curtain Wall Co also flagged risks this week, saying it posted a loss of up to 1.4 billion yuan last year on Evergrande’s receivables at risk of deterioration.

Earlier this month, Guangdong Pak Corp, a light fixture maker, said it expected an 85% to 90% drop in profits in 2021, thanks to increased impairments related to Evergrande. And Shenzhen Wenke Landscape Co said it fell into the red last year due to Evergrande’s flaws.

Most companies listed in China will start reporting their annual results next month, and more such disclosures are expected as dozens of Chinese suppliers disclosed debts owed by developers like Evergrande. Some have already made provisions.

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

Units of Shimao Group Holdings, Kaisa Group Holdings and Greenland Group were named and humiliated this month in a list of Chinese companies “constantly late” on commercial paper payments.

And the total number of such companies in default jumped 26% in December from the previous month, according to the compiler of the list, the Shanghai Commercial Paper Exchange.

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

Shanghai Trendzone Holdings Group, a home decorating company, recently said it filed 333 lawsuits against Evergrande and its subsidiaries, and the impact on earnings is unclear ahead of court rulings.

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