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Evergrande has never reported a loss even once, short-term assets have always outstripped short-term liabilities, but the risk of bankruptcy is approaching. So what's the twist behind the nice numbers on the financial statements?
September 24, 2021 Evergrande's electric vehicle company is behind on staff salaries, overdue debt to suppliers
September 23, 2021WSJ: The Chinese government is preparing for Evergrande default scenario
The two most important financial metrics in a business are solvency and liquidity. Liquidity represents the long-term viability of the business, as measured by the relationship between liabilities and assets, or equity. If liabilities are greater than assets, or equity is negative, the business is insolvent. Liquidity indicates the ability to meet short-term financial obligations, as measured by the difference between current assets and current liabilities. If current assets are larger, then the company has enough resources to repay the debt in the near future. Whether a company goes bankrupt will directly depend on liquidity. In Vietnam, when an enterprise has less current assets than current liabilities, the auditor will cast doubt on its ability to continue as a going concern. With Evergrande - the world's most indebted real estate group, both payment and liquidity measures look good. Evergrande's financial statements are not quite as beautiful as a dream, but they are enough to make many businesses jealous. Historically, this corporation has never reported a loss. Equity is of course always positive. Current assets are also always larger than current liabilities in every reporting period. But many investors around the world are worried that Evergrande is about to go bankrupt, even becoming a Chinese version of Lehman Brothers.
In the first 6 months of 2021, Evergrande made a profit of about 9.3 billion yuan (NDT), equivalent to 1.4 billion USD.
No. 2 in China, No. 1 in the world
Evergrande today is known by two titles: China's second largest real estate group by revenue and the world's most indebted real estate company. Evergrande's history began in 1996 when it was established by owner Hua Gia An in Guangzhou city under the name of Hang Dai company. Both Evergrande and Hang Dai carry the meaning of greatness forever over time.
After years of growth driven mainly by debt, Evergrande now owns more than 1,300 real estate projects in 280 cities across China, the company's website says.
In 2020, Evergrande recorded revenue of about USD 106 billion, ranking 2nd in China. As of June 30 this year, the group's land bank includes 778 projects in 233 cities with an expected floor area of 214 million m2. Chairman Hua Gia An's group also strongly invests in outside the industry with many subsidiaries in the fields of electric vehicles (Evergrande New Energy Auto), internet and communication (HengTen Networks), amusement parks (Evergrande Fairyland). ), football (Guangzhoe FC), mineral water and food (Evergrande Spring), … The whole group has 200,000 employees and annually hires about 3.8 million additional workers to carry out construction projects.
The grand criterion of the corporation's name can be considered achieved, but its permanence is being questioned by the world. 300 billion USD debt bomb To own a huge number of projects and generate over $100 billion in revenue a year, Evergrande had to accumulate more than $300 billion in debt on its balance sheet, accounting for 83% of total capital. Paradox in Evergrande: Every year billions of dollars in profit, huge short-term assets, why is it still on the verge of bankruptcy? - Photo 4. Short-term debt is $238 billion, outstripping equity. Of which, loans from financial institutions are about $87 billion, the rest is payable to suppliers, homebuyers' deposits and other debt obligations. If Evergrande defaults on its debt, the individuals and institutions that have lent it to the group could also fall into a liquidity crisis, creating far-reaching knock-on effects. In 2018, a report by the People's Bank of China (PboC) identified Evergrande as one of the large enterprises capable of posing risks to the country's financial system.
However, concerns about Evergrande only really surfaced around this day last year when a secret document was posted on Chinese social media. The document includes a letter of request for help dated August 24, 2020, allegedly sent by Evergrande to the Guangdong provincial government and attached documents listing Evergrande's creditors with about 128 banks and 121 institutions. non-bank. The fact that the letter of "grievance" appeared shortly after the "three red lines" policy was adopted by China, has raised many speculations about Evergrande's financial health. In 2020, the People's Bank of China and the Ministry of Housing of China announced three criteria to grant "loan room" to real estate companies, which are: The ratio of liabilities to total assets should not exceed 70% ( excluding prepayments), the net debt-to-equity ratio should not exceed 100%, and the cash-to-short-term loan ratio should be at least 1.
Evergrande President Hua Gia An immediately declared the above document dated August 24, 2020 to be forged, seriously affecting the company's reputation and said that he had invited the police to investigate the culprit. .
However, a year later, on September 20, 2021, Evergrande was unable to pay the due interest of two major creditors.
Evergrande runs out of money, has to pay overdue debt with a house under construction
To investors and suppliers, this group offers to repay with unfinished real estate such as apartments, parking lots, ...
The letter leaked a year ago may or may not have been fake, but seems to accurately describe Evergrande's predicament.
Behind the numbers on Evergrande's report
According to the mid-2021 consolidated financial statements, Evergrande's short-term assets are about $296 billion, accounting for 82% of total assets and equivalent to 1.24 times short-term liabilities. Historically, the short-term asset/short-term debt ratio has always been greater than 1.
Notably, the largest item in Evergrande's short-term assets is construction in progress, worth nearly $192 billion. These are properties that the group believes can be completed within a financial year.
To complete these projects, the corporation will need to pour more money. Otherwise, very few people will want to buy unfinished houses, so the liquidity of assets is not high.
In other words, Evergrande's current assets cannot easily be converted into cash to settle short-term debt obligations.
This group wants to pay debt directly with unfinished projects, but few people are interested because of poor liquidity and many legal problems.
Paradox in Evergrande: Every year billions of dollars in profit, huge short-term assets, why is it still on the verge of bankruptcy? - Photo 7.
Even Evergrande's profits are suspected of being fake because if the company continued to make real profits, it wouldn't be so short of cash that it wouldn't be able to pay its debts.
One of the big problems with Evergrande in particular and Chinese businesses in general is that the investment losses are not fully accounted for.
When land and house prices fall, the real estate business should make a provision and record a decrease in inventory value. Then the profits, equity, and total assets of the business all decrease by the same amount.
If the enterprise does not record a decrease in inventory, the figures of assets, equity and profit on the financial statements will all be higher than it actually is.
Some experts estimate that about $220 billion of Evergrande's inventory is actually losses due to falling asset prices, but not properly accounted for. In other words, Evergrande's assets are being inflated and if recorded correctly, Evergrande will be negative in equity, insolvent.
Warning 9 years ago
For many people, this $220 billion figure doesn't come as much of a surprise.
Since June 2012, nearly a decade ago, the research firm Citron Research has released a report with the content of accusing Evergrande of accounting fraud and asserting that the company's equity must be negative.
According to Citron, Evergrande at that time exaggerated the cash value of about 17 billion yuan, inflated the real estate investment portfolio by 10 billion yuan, and inflated the value of the non-industry investment projects of Chairman Hua Jiayan 12. billion yuan, exaggerating the original land purchase price of 6 billion yuan, hiding debts worth 23 billion yuan ...
As Evergrande's scale has grown over time, the twists and turns in the company's accounting policies have also grown constantly, the numbers that used to be tens of billions of yuan have now become hundreds of billions of dollars.
Citron Research also accused Evergrande of bribing government officials to take over a huge land fund at a cheap price, receiving land and then leaving it empty for many years, and also cited many violent incidents between Evergrande and the people affected, …
Mr. Andrew Left, the founder of Citron Research at the time, did not know that Evergrande Chairman Xu Gia An was one of the richest and most connected people in China.
Mr. Left was sued in court. According to this founder, during the course of the lawsuit, Evergrande has always been carefully protected, the authorities in Hong Kong did not allow Citron to learn any information from Evergrande.
After 7 years of legal fighting and millions of dollars in costs, Andrew Left lost the lawsuit. He was banned from trading on the Hong Kong Stock Exchange for five years from October 2016 to October 2021.
The ban period with Mr. Left is almost over, many of the analyzes in his report nine years ago have also been proven by time. The big question now is whether the relationships that have helped Evergrande win the case before can help this group be rescued from the brink of bankruptcy? Beijing does not want the economy to incur systemic risk, but it also cannot allow moral hazard to take root in the heads of oligarchs.
Evergrande chÆ°a từng báo lá» dù chá» má»t lần, tà i sản ngắn hạn luôn vượt xa nợ ngắn hạn nhÆ°ng nguy cÆ¡ phá sản lại Äang cáºn ká». Váºy uẩn khúc Äằng sau những con sá» tÆ°Æ¡i Äẹp trên báo cáo tà i chÃnh là gì?
vietnambiz.vn
Evergrande is just like CNese here, never admit a single loss after WW2, everything from CN is alway the best , but suddently they are facing the great risk of collapse
asia.nikkei.com
