China property developers, Evergrande, can’t release earnings on time
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The Evergrande Changqing community, September 24, 2021.
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A number of Chinese real-estate developers stated this week that either they cannot release financial results in time or that they have not set up board meetings.
The troubled property developer is one of these. EvergrandeIts debt crisis caused turmoil in the investment market last year.
Developers offered a range of reasons as to why they couldn’t do it.
Evergrande filed a statement to the Hong Kong stock exchange Tuesday, stating that because of the “drastic” changes in the company’s operational environment, the auditor had added “a large amount of audit procedures” to this year.
According to the filing, Evergrande stated that due to the “effect caused by Covid-19” outbreak, the company will be unable publish its results before March 31st for the fiscal year 2021.
The company stated that the results of the audit will be published “as soon possible” following completion.
Others claimed the resignation of their auditors meant they were unable to issue their FY 2021 earnings in time according Japanese bank Nomura.
If developers switch auditors prior to their full-year results seasons, this raises concerns about possible auditing issues. This should be a red flag for the market.
Developer Ronshine said Monday that PricewaterhouseCoopers (PwC) has quit, citing insufficient time for the audit as well as the Covid resurgence in China as two main reasons for the resignation.
Aoyuan Shimao, Shanghai Shimao, and Hopson have all announced changes in their auditors over the past two-months.
Nomura stated in Monday’s note that developers who change their auditors before their full-year results seasons raise red flags about potential auditing problems and should cause serious market concern over the reliability of their financial figures.
Expected shrinking margins and a fall in profits
Nomura said that nine property developers had not yet announced the dates for their FY2021 board meetings as of Monday.
The likelihood of more developers being unable to release their results on time is rising, Nomura said, considering that listed firms need to announce their board meeting dates at least seven working days prior to their actual results dates – which are set to be 31 March by the latest.
Nomura stated that even if the developers are able to release their FY21 results within the deadline, they expect qualified opinions, weak results and low results (squeezed margins and declined profits, reduced dividend payouts for FY21-22F for the sector) in the next two weeks. This should further impact the sector’s share price, according to Nomura.
Property shares outlook
In mid-March, investors felt more confident China signaled support for Chinese stocksThe government indicated it would strive to restore stability in the struggling realty sector. The result sent the markets of Hong Kong, as well as property stocks, soaring last Wednesday.
Since then real estate shares have lost and gained direction.
Major real estate developers, such as Shimao, Sunac, Evergrande and Country GardenThe general trend is to hover below the lowest levels they reached last year, when the Chinese realty market fell into a crisis.
Evergrande’s troubles came to an end after authorities introduced the “three redlines” policy in 2013. This was designed to curb developers who had been benefited from years of excessive growth. This policy sets a ceiling on the amount of debt a company can have in relation to its cash flows, capital and assets.
As the crisis in debt unraveled other Chinese real estate developers also started showing signs of strain – some missed interest payments, while others defaulted on their debt altogether.
China did signal that it might ease up in late 2013 as it seeks out to increase slowing economic growth, especially given the pandemic threat.
When Beijing set a GDP target of around 5.5%Leaders also discussed plans to increase economic support for business this year.
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