China Jinmao, a real estate company owned by the central enterprise China Sinochem Group, expects its earnings to decline by about 40%-50% in 2020. The decline in net profit is accompanied by an increase in debt, with China Jinmao’s total debt reaching 298.027 billion as of June 30, 2020, and at the rate of increase of over 20% in recent years, total debt may now exceed 300 billion.
The Changjiang Business Daily reported on February 8 that sales data from China Jinmao’s earnings presentation showed that China Jinmao achieved contracted sales of 231.1 billion yuan in 2020, a 43.7% year-over-year jump. Kruger’s full-caliber sales ranking jumped forward three spots to No. 15.
Despite the increase in sales, Jinmao’s performance did not improve. China Jinmao recently issued an earnings warning, expecting full-year earnings to decline by about 40%-50% in 2020.
Xie Yifeng, president of the China Urban Real Estate Research Institute, said that the decline in Jinmao’s profit is somewhat related to the overall high land acquisition price, and also related to the rising cost of financing and loans, the overall high development cost, and the decline in housing sales price due to the price restriction policy.
In August 2020, the central bank of the Communist Party of China (CPC) set “three red lines” to set the growth threshold of interest-bearing liabilities of real estate enterprises and reduce the scale of financing trusts, forcing real estate enterprises to deleverage and reduce liabilities.
According to public financial data, as of the first half of 2020, excluding nearly 20 billion yuan of perpetual bonds, China Jinmao’s gearing ratio after excluding pre-receipts was 66.64%, net debt ratio was 76.6% and cash to short term debt ratio was 0.6, which was a “red line” for China Jinmao, which did not have sufficient cash on hand.
Combing through Jinmao’s financial reports in recent years, its total liabilities from 2016 to 2019 were 111.160 billion, 155.601 billion, 193.373 billion and 242.447 billion, with an average growth rate of more than 20%, and as of June 30, 2020, its total liabilities reached 298.027 billion.
Xie Yifeng said that Jinmao’s continued leverage may bring risks such as cash pressure, credit default, and debt collapse, which may most likely lead to projects being sold or assets being liquidated, and these situations may affect plans for subsequent scale expansion. The best way to reduce debt and leverage is to get more financing loans, followed by speeding up sales return and spinning off some other industries for listing to expand financing channels.
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