RATLAND IS A FINANCIAL PACK OF CARDS STACKED ON DESPAIR
Evergrande’s $21 Billion Sales Blitz Fails to Impress
Developer cuts prices, warns of bonus cuts if targets missed
Firm is under regulatory, investor pressure to reduce debt
China Evergrande Group pulled out all the stops to boost sales during the nation’s Golden Week holiday, slashing apartment prices by as much as a third and pressuring staff at even its electric vehicles unit to sell homes or face salary cuts.
Under pressure to curb leverage, the junk-rated developer seized the eight-day stretch popular with home buyers to press its entire workforce into the sales effort. Evergrande said Friday that it achieved contracted property sales of 142 billion yuan ($21 billion) from Sept. 1 to Oct. 8, about 71% of its two-month target, though average prices dropped to a four-year low.
The sales bonanza failed to impress investors worried that the world’s most indebted developer is squeezing margins to get cash through the door. It last month dodged a liquidity crunch by persuading creditors to waive their right to force a $13 billion repayment that would have strained its balance sheet and announced plans to list two units. However, the Shenzhen-based company isn’t out of the woods: It has $120 billion of debt to service, with at least $5.8 billion due in the next two months.
“October historically tends to be a better month for property sales, but if you look on the national level I wouldn’t say property sales are very strong,” Hao Hong, chief strategist for Bocom International in Hong Kong, said in a Bloomberg Television interview. The company is “kicking the can down the road.”
Evergrande’s sales figures translate into average selling prices of 8,627 yuan per square meter during the period, 11% lower than the level in August.
Shares in Hong Kong fell 3.2% to HK$19.6, snapping five days of gains.
The developer knows it needs to hurry. It’s offering its steepest discount ever of as much as 30%, with an additional 7% off for lump sum cash payments at some projects. It plastered billboards along highways and even on hospitals in Xinjiang, and has warned of pay cuts if sales targets are missed, according to workers interviewed by Bloomberg.
Evergrande could sustain its price cuts throughout the year and squeeze gross margins to 24% compared with the consensus forecast of 27%, according to Bloomberg Intelligence analysts Kristy Hung and Patrick Wong.
The heavy discounts worked in some cities.
One suburban project sold 50 million yuan of apartments during the first five days of Golden Week, twice the amount of a usual week, according to a sales manager who asked not to be named because he isn’t authorized to speak publicly. Average discounts have reached about 32% during the holiday, the manager said.
“Evergrande is a big brand,” said Wang, who bought an apartment with her husband and 16-year-old son and asked to be identified only by her last name. She brushed aside concerns about the company’s debt load.
Yet for others, the sales promotions seem concerning. After looking at 3D mock ups of the “Life in Venice” project, 28-year-old technology worker Han decided against buying, even though the unit’s ocean views matched the first-time buyer’s dream residence.
“First they said 10% off, later it became 30% off,” said Han, who checked out the project about an hour’s drive from Shanghai. “It just feels a bit like a hoax. If things are normal, it can’t come with such a big discount.”
Evergrande didn’t immediately respond to emailed requests for comment on the sales campaign.
Han’s skepticism underscores concerns that the company’s financial health remains precarious even after it avoided a liquidity crunch that had threatened to roil the nation’s $50 trillion financial system.
The pandemic has caused job losses, which will sap home sales momentum, said Bocom International’s Hong. “The intention to curb property speculation is very strong.”
Evergrande’s apartment prices have been falling in some cities. Prospective shoppers in some first- and second-tier cities said prices of the projects they’ve been looking at have declined as much as 15% in recent months. Units at the ready-to-move-in Evergrande Shanghai project are about 12% cheaper compared with the start of the year.
For Evergrande employees, the holiday sales blitz has been a strain. Dubbed the “All Employee Promotion,” the company turned its entire 130,000-strong workforce into a temporary sales army, including those working in the auto and finance units.
Cathy, who requested to be identified only by her first name because she isn’t authorized to speak, said she has been working non-stop. Part of the electric vehicle unit, she and her team were told to sell at least three apartments before the promotion ends, but three days before the deadline had failed to close a deal. Another EV unit staff member said he faced a bonus cut if he couldn’t meet his target.
Hu, another worker with no experience in property sales, said she could only ask friends and relatives. Evergrande allows staff to promote sales through its app in exchange for a bonus of at least 1% of the full price.
After visiting the “Life in Venice” project, Han has been bombarded with phone calls urging him to make a decision because the discount will expire in a few days. He remained wary.
“The company has loads of debt, if it can’t finish construction due to liquidity stress, I would lose the property and my life savings,” Han said.