China Evergrande Group, the property developer with dreams of becoming an electric-vehicle powerhouse, is finding it’s picked an inopportune time to load up on debt.
The company’s total borrowings swelled almost $ 20 billion in the first half to $ 113.7 billion — about equal to the market value of BHP Group, the world’s biggest miner. That’s spooked investors given about $ 53 billion of that falls due in the next 10 months and 75 percent within the next two years.
The debt blowout — the biggest for Evergrande in 2 1/2 years — was fueled as the company poured billions of dollars into its electric vehicle ambitions, while additional curbs on the housing market slashed sales. It also comes as the government is tightening funding avenues for home builders as part of a drive to deleverage the economy.
“Evergrande faces its biggest liquidity pressure in at least two years,” said Zhou Chuanyi, a credit analyst at Lucror Analytics in Singapore. “It’s more difficult to borrow money, and they have a lot of debt to repay. The two kinds of pressure are squeezing them at the same time.”
Lucror expects ratings companies to take negative actions on Evergrande, it said in a research report last week. Given the market environment, deleveraging seems unlikely at least in the second half of the financial year, analysts from Nomura Holdings Inc. wrote.
Representatives from Evergrande didn’t immediately respond to a request for comment.
Evergrande is already paying among the highest rates to sell bonds in the offshore dollar market. Of the 68 issues by Chinese real estate developers this year, the average coupon was 7.9 percent. Evergrande paid 10.5 percent when it sold $ 700 million of five-year notes in April. Those securities touched a record low of 91.6 cents on the dollar Friday.
Earlier this year, Evergrande’s billionaire founder and chairman, Hui Ka Yan, spent $ 1 billion of his own money buying the company’s bonds in a show of faith in the business.
The company’s Hong Kong-traded stock slumped the most in seven months last week after Evergrande reported a 45 percent drop in core profit. The shares are down 31 percent this year, making Evergrande the worst-performing Chinese developer listed in the former British colony.
As well as failing to make good on its promise to deliver a first “pure battery” electric vehicle by June, Evergrande also missed its pledge to cut its net debt to equity ratio to 100 percent, according to Bloomberg Intelligence.
Instead, it held steady as of the end of the half at 153 percent.
Compounding the woes are Evergrande’s ambitious ventures outside its main real estate business: EVs aren’t likely to reach a break-even point for years.
Evergrande has spent more than $ 3.6 billion since late last year on an array of EV-related companies, including an interest in a maker of in-wheel motors, a stake in a battery manufacturer, part of a Swedish firm focused on intelligent cars and even a car sales network. In March, it said it wants to be the world’s biggest maker of EVs.