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By Clare Jim
HONG KONG, Aug 26 (Reuters) - Evergrande Real Estate Group reported on Tuesday a surge in its debt ratio in the first-half as China’s third largest property developer sought funding for its expansion into top-tier cities, which offer higher margins.
Evergrande’s net gearing ratio climbed to 89.6 percent during the first six months of the year, an increase of 20.1 percentage points from the end of 2013, the company said in its earnings statement.
Perpetual securities, or structured loans which are not classified as debt in the balance sheet, also jumped 82 percent from the previous six months to 44.5 billion yuan ($7.23 billion). These securities carry interest rates of 9 to 11 percent, according to the company.
Evergrande Chief Executive Officer Xia Haijun said the high debt ratio was a result of the company’s short-term strategy to ensure it has enough capital to acquire more lucrative land in first and second tier cities.
As a result, the company expects contracted sales this year to “far exceed” the annual target of 110 billion yuan ($17.9 billion) and also remain strong into next year.
“We have 64 billion yuan cash now. This is based on the worst case scenario that even if we couldn’t borrow a penny from the banks, we would still have a stable growth,” he told reporters.
Evergrande said its core profit rose 39.3 percent in the first half to 6.5 billion yuan while net profit climbed 13.6 percent to 7.1 billion yuan.
Chinese property developers are scrambling to raise funds to expand amid tightening credit conditions, excess supply and a slowdown in the nation’s real estate industry.
Developers and investors are also trying to gauge the impact of easing home purchase restrictions in some Chinese cities as data shows price declines spreading to top-tier cities, underscoring a worsening downturn that is dragging on the broader economy.
In a bid to diversify its holdings, the Guangzhou-based Evergrande said it was planning to get into businesses such as agriculture, livestock, cooking oil and milk powder. It did not give further details.
Shares of Evergrande closed up 4 percent after the announcement, compared to a 0.37 percent fall in the broader market. ($1 = 6.1522 Chinese yuan) (Reporting by Clare Jim; Editing by Miral Fahmy)