Sunday, October 2, 2022

China’s Evergrande Group: A play on China’s boom

Written by Saahil Gupta, CNN

“The Evergrande Group is seen as a perfect macro play on China’s real estate boom,” says David Bakke, market analyst for Motley Fool. “What it really signifies is how all of those developers are leveraging on real estate demand while making it hard for Chinese consumers to resist at the same time. That’s pretty interesting to watch unfold and it’s all part of the big scheme of things here in China.”

Evergrande Group is best known for its baby-focused brand of baby products, Hui Ka Yan (hr), but its ascendance is fueled by its Chinese real estate projects.

In April 2016, the company announced plans to focus on construction and engineering, especially after being slapped with a $7 billion fine by China’s top auditing body, Caijing magazine reported. Today, Caijing says the company is planning to spin off its property arm into a new publicly-traded company.

Evergrande Group is currently in negotiations with a number of lenders to swap its other debt for equity, Bloomberg reports.

The troubles and the rise

Evergrande’s financial woes began in the early 2000s, the government reports. In 2004, Evergrande Global Holding, Evergrande Investment Holdings, and Evergrande Property Development were combined under the new brand Evergrande Group.

Other real estate companies quickly mimicked the company’s innovations, says Jim Stiles, senior corporate and government analyst at China Real Estate Information Corp. (CRIC).

“They broke up the parcel units, which was a very novel idea because it allowed people to buy them individually. It allowed you to have access to apartments while keeping a condo there for your kids to live in when they have to go away to school and work,” he says.

CRIC notes that Evergrande’s market capitalization is currently $55 billion — more than the entire market capitalization of KB Home, Lennar, Beazer, and Ryland combined.

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The company once had 542 hotels under its development, according to Baiyanjie, a website for company suppliers. A May 2017 profile of CEO Wu Chenggang says that some of those hotels have closed and several are currently being converted into vacation properties, which will likely lose revenue, Baiyanjie reports.

According to Baiyanjie, Evergrande Group currently has some 50,000 suppliers to its business, but Baiyanjie manager Li Jian expressed concerns with the growing indebtedness.

“We’re worried about what’s happening with Evergrande Holdings, as that company has been very acquisitive,” he says. “They just want to dominate the property market, and we don’t want it to happen.”

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