Financial Crisis Tests Chinese Real Estate Companies’ Ability to Deal with Risks

BEIJING -

Evergrande Real Estate Group tops the “Sales Rankings of Chinese Real Estate Companies for Q3 2009″, in terms of floor space sold for the first three quarters of 2009, area of projects under construction, land reserves, as well as floor space sold and sales revenue for the third quarter. Sina Leju was the first media source to announce the release of this report.

This is a perfect case of a complete revival after nearing the brink of bankruptcy: just a year ago, this real estate company was suffering from a host of rumors about the suspension of its IPO. How did Evergrande Real Estate Group manage to come back from the dead following the double whammy of the financial crisis and the IPO suspension? Finding out answers to this phenomenon will certainly allow other China-based real estate firms to learn from their experience in coping with crises.

Many companies failed to survive the financial crisis, but Evergrande has significantly built up its overall strength. First, the financial soundness of the company has been greatly improved. Like other real estate companies, Evergrande was facing financial pressure from the high number of debts on its books.

In 2008, the IPO suspension at Evergrande Real Estate Group revealed a funding gap amounting to tens of billions of yuan at the company, causing the market to ask the company a lot of tough questions. Commenting on their difficulties, Xu Jiayin, chairman of Evergrande’s board of directors, said frankly that during the past year and more, the company was struggling to deal with two crises: financial turmoil and a capital shortage as a result of the IPO suspension.

The financial crisis, in fact, tested Evergrande’s ability to survive difficult times. According to Chinese media, as of June 30, Evergrande had a cash balance of RMB 4.8 billion and accounts receivable on sales of RMB 3.3 billion adding up to cash and cash equivalents of RMB 8.1 billion. In addition, the ratio of liabilities to assets had declined to 71 percent. At the end of the third quarter, Evergrande had an even sounder financial position.

During the course of addressing the financial crisis, Evergrande once again increased its land reserves quietly by five million square meters, expanded floor space under construction, and achieved substantial growth in sales. Currently, the developer’s land reserves and floor space under construction have reached 51 million and 17 million square meters, respectively, both the highest in China.

A CRIC (China) Information Technology report shows that Evergrande is now speeding up its marketing efforts. For the third quarter of 2009, Evergrande posted floor space sold of 2.3 million square meters and sales of RMB12.3 billion, both the highest third-quarter results in China, overtaking Vanke, the traditional benchmark for the Chinese real estate market. During the quarter, Evergrande also took the lead in that market with a growth rate of up to 100 percent, much higher than any of its Chinese rivals. Driven by the strong third-quarter sales results, the total floor space sold by the company during the first three quarters of this year reached 4.53 million square meters, making it the No.1 Chinese real estate developer in terms of floor space sold. Evergrande was followed by Vanke, whose floor space sold during the first nine months of 2009 totaled 4.41 million square meters.

After weathering the financial crisis, Evergrande has restored its finances and is not only back on the fast track, but moving into the passing lane. In comparison to other leaders in the sector, the group’s biggest drawback was its delay in tapping into capital markets. But now, that worry is a past one. Reports say that the group has passed the listing hearing at Hong Kong Exchanges and Clearing and is expected to go public in December, becoming this year’s largest IPO in the sector. Once completed, the IPO is likely to enable the group to upgrade its capital turnover, brand influence and image in the capital market.

For more information, please contact: Kevin Fax: +86-10-5895-1005 Email: Kevinmts@sina.com

Source: Sina Leju

Kevin, Fax: +86-10-5895-1005, Kevinmts at sina.com