Chinese firms warn over Evergrande woes

Chinese firms warn over Evergrande woes

A growing number of Chinese construction and decoration companies are writing off assets or issuing profit warnings because debt woes at China Evergrande Group and other property developers debilitate their suppliers.

More disclosures are expected to be made during the upcoming earnings season, putting pressure on Chinese authorities to do more to limit the contagion from developers' financial crisis and avert job losses.

Guangzhou Holike Creative Home Co, a furniture maker, has disclosed losses linked to Evergrande, which has racked up more than US $300 billion in debt, including 200 billion yuan US $31.44 billion owed to suppliers via commercial paper.

In an exchange filing on Wednesday, Holike expects to see net profit fall as much as 60 per cent from a year ago, hurt by receivables to Evergrande that are unlikely to be collected.

In addition to that, the Chinese property market downturn has hurt the value of a company it acquired in 2020, resulting in impairment losses, Holike said, adding that it has slashed business with Evergrande and is seeking claims.

The Beijing Jiayu Door, Window and Curtain Wall Co also flagged risks this week, saying it turned in a loss of up to 1.4 billion yuan last year thanks to receivables from Evergrande that are likely to go sour.

In the past, Guangdong Pak Corp, a maker of lighting fixtures, said it had predicted a drop in earnings by 85 per cent to 90 per cent in the year 2021, due to a jump in Evergrande-related impairment losses. Shenzhen Wenke Landscape Co said it fell into the red last year due to Evergrande defaults.

Most Chinese companies will report annual results next month, with more disclosures expected, as dozens of Chinese suppliers reveal debts owed by developers like Evergrande. Some have already set aside provisions.

Recent data suggests that the problem will get worse, despite the easing measures taken by the government to ease developers' liquidity stress and support the cooling economy.

The units of Shimao Group Holdings, Kaisa Group Holdings and Greenland Group were named and shamed this month in a list of Chinese companies that are overdue on commercial paper payments.

According to the list compiler, the number of delinquent firms jumped 26 per cent from the previous month.

Evergrande, the world's most indebted developer, is seeking debt restructuring as it struggles to pay creditors, suppliers and investors in wealth management products.

The impact of the lawsuits against Evergrande and its subsidiaries isn't clear until the legal rulings are made by Shanghai Trendzone Holdings Group.