Country Garden delays earnings report, Vanke net tumbles as woes deepen

ONE of China’s biggest property firms delayed its earnings report while another posted a record profit decline as the nation’s real estate crisis shows no signs of easing.

Country Garden Holdings, once the nation’s top residential builder by sales, made a surprise announcement late on Thursday (Mar 28) that it will miss a deadline for reporting annual results, saying that it needs more information. China Vanke, at one time the largest listed developer, said net profit tumbled 46 per cent last year, the biggest drop since its 1991 listing. 

The dire statements, along with a jump in bad loans at some banks, underscore how a weak economy and sluggish consumer confidence continue to weigh on home sales in the world’s second-biggest economy.

Annual price declines deepened in February for both new and used homes, highlighting the challenge for authorities as they try to salvage the beleaguered market. 

The downturn has spared few firms, be it private or state-backed. Country Garden and Vanke were both hailed as likely survivors just a year ago. Country Garden roiled markets when it defaulted on its dollar debt in October and Vanke is fighting to stave off default through negotiation with insurers on debt.

Country Garden said it expects to delay publishing its 2023 results beyond the Mar 31 deadline imposed by regulators. The delay will likely result in a suspension of trading on Apr 2 when the Hong Kong market reopens after Easter, the firm said in a filing. 

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The postponement signals that the developer’s troubles are entering a new chapter after a Hong Kong court received a creditor’s petition to wind up the company following the default on dollar debt. The company also missed a coupon payment on a yuan bond this month for the first time. 

The move “suggests new impediments to its restructuring, with any delays to its debt plan likely to fuel concerns of lawsuit risk”, said Bloomberg Intelligence analyst Kristy Hung, in a research note.

Country Garden said it needs time to collect more information so it can “make appropriate accounting estimates and judgments, and reasonably reflect changes in the industry”, according to the filing. 

Vanke meanwhile said net income attributable to shareholders shrank to 12.2 billion yuan (S$2.3 billion) for 2023. The drop dwarfs a 14 per cent slide expected by analysts surveyed by Bloomberg. 

The giant builder said it aims to cut debt by more than 100 billion yuan in the next two years as it “firmly deleverages”. Vanke didn’t propose a cash or stock dividend, skipping a full-year payout for the first time since its 1991 listing in the China market. 

Vanke’s stock has stumbled to record lows in Hong Hong, and some of its longer-dated bonds recently traded near 40 cents, approaching deeply distressed levels. Vanke has a US$600 million bond due in June trading above 90 cents, indicating less investor concern about repayment in the short-term.

Together with mid-sized developers, the former giants offer a glimpse into the sector’s worst earnings season ever as the real estate slump enters a fourth year. Among 23 property developers that have released earnings, 14 announced a net loss and six reported shrinking profit, Bloomberg calculations show. Just three saw a mild profit gain. 

The protracted property downturn has also eroded the balance sheets of the largest state banks as their bad loans creep up, suggesting a spillover to the financial sector. Beijing tasked state-owned banks with helping pump up the domestic economy as well as supporting debt-laden property developers. 

Bank of Communications reported that its property bad loan ratio jumped to 4.99 per cent at the end of last year from 2.8 per cent a year earlier.

Bigger rival Industrial & Commercial Bank of China saw its bad loans from residential mortgages rise 9.6 per cent. Agricultural Bank of China reported a 4.7 per cent increase in soured residential mortgage loans last year. 

A persistent home sales drought has endangered an increasingly larger group of developers. The residential sales slump deepened in February even as price declines eased slightly on a month-on-month basis.

The sales weakness has prompted some global credit raters to downgrade some of the firms into junk territory, including Vanke and Longfor Group Holdings. 

Fitch Ratings on Thursday cut forecasts for the housing market, now expecting a 5 to 10 per cent fall in new home sales this year amid weaker home-buying demand. The ratings firm previously estimated a zero to 5 per cent decline. BLOOMBERG