Big Ever­grande shop­ping spree is not slow­ing down

China Daily (USA) - - BUSINESS - By BLOOMBERG

China Ever­grande Group’s debt-fueled ex­pan­sion spree shows no signs of slow­ing down.

Even as soar­ing in­ter­est pay­ments and mar­ket­ing costs ate into first-half profit, a top ex­ec­u­tive at the Chi­nese de­vel­oper said late onTues­day that the com­pany wants to ac­quire bro­ker­age and trust com­pa­nies as well as smaller ri­vals — deals that would add to about $6 bil­lion of pur­chases since the start of 2016.

Ever­grande, which made a sur­prise en­try in Au­gust into the bid­ding war for the coun­try’s largest home­builder — China Vanke Co — also sig­naled it may in­vest in other listed com­pa­nies.

Bil­lion­aireChair­manHuiKa Yan’s strat­egy of debt-funded deal­mak­ing has be­fud­dled an­a­lysts and left Ever­grande with a credit rat­ing that’s among the low­est of large Chi­nese de­vel­op­ers.

Moody’s In­vestor’s Ser­vice, which in Jan­uary cut the com­pany’s notes to a “high risk” rank of B3, last month re­it­er­ated its neg­a­tive out­look, cit­ing high lever­age. Tues­day’s earn­ings re­port­may­dolit­tle to al­lay con­cerns about its bal­ance sheet, with debt soar­ing 28 per­cent to 381.3 bil­lion yuan ($57.1 bil­lion) in the first half and in­ter­est pay­ments tripling.

The de­vel­oper said it will also work on ex­pand­ing its land banks in the sec­ond half to meet sales tar­gets, and pur­sue “cost-ef­fec­tive” ways to add to projects, such as merg­ers and ac­qui­si­tions.

“Growth wouldn’t have been as high had Ever­grande not been ag­gres­sive in the last two years,” Chief Ex­ec­u­tive Of­fi­cerXi­aHai­jun told re­porters in Hong Kong on Tues­day, re­fer­ring to the com­pany’s pur­chases of land banks. “We would have missed out.”

Ever­grande shares slumped as much as 4.7 per­cent on Wed­nes­day to HK$5.49, the most since June 24. The stock has de­clined al­most 19 per­cent this year, com­pared with an 11 per­cent in­crease in the Hang Seng Prop­er­ties Index. Its $1 bil­lion- 12 per­cent notes, due in 2020, fell 0.5 centson­the dol­lar to 111.8 cents as of 9:36 am in HongKong, the low­est in more than two weeks, ac­cord­ing to Bloomberg-com­piled pric­ing.

chief ex­ec­u­tive of­fi­cer of China Ever­grande Group

Xia Hai­jun,

The Guangzhou-based de­vel­oper re­ported core profit, or profit ex­clud­ing prop­erty reval­u­a­tions and for­eign-ex­change losses, fell 23 per­cent to 7.8 bil­lion yuan in the first half, from 10.2 bil­lion yuan a year ear­lier, ac­cord­ing to a state­ment to the Hong Kong Stock Ex­change on Tues­day. Mar­ket­ing costs jumped more than 51 per­cent as the com­pany said it em­barked on na­tion­wide “brand pub­lic­ity ac­tiv­i­ties.”

The higher costs were off­set by surg­ing prop­erty sales, with con­tracted sales jump­ing 63 per­cent to 141.8 bil­lion yuan. The de­vel­oper has pledged to ex­ceed its 300 bil­lion yuan tar­get for pre-sales con­tracts this year, a goal that’s the high­est among main­land builders amid a turn­around in China’s hous­ing mar­ket.

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