Debt-stricken Sino-Ocean warns of hefty losses amid plunge in home sales as turnaround eludes Chinese developers

Debt-stricken Sino-Ocean warns of hefty losses amid plunge in home sales as turnaround eludes Chinese developers

Debt-stricken Sino-Ocean warns of hefty losses amid plunge in home sales as turnaround eludes Chinese developers

Debt-stricken Chinese developer Sino-Ocean Group said it is likely to report another year of hefty losses in 2023 as home sales in mainland China plunged, signalling no immediate turnaround in the nation’s three-year industry slump.

The firm expects to incur a loss of 20 billion yuan (US$2.8 billion) to 23 billion yuan for the year ended December 31, according to a Hong Kong stock exchange filing on Tuesday. Losses in 2022 are expected to be restated to 19 billion yuan from its previously reported 15.9 billion yuan.

The profit warning came as home builders struggled to overcome weak sales as consumer confidence cracked amid concerns about a credit crunch plaguing even some of the strongest players. Developers including China Vanke and Country Garden Holdings have sought more funds and state backing to help repay creditors as more debt matures.

A man rides an electric bike past a residential project in Beijing in June 2023. AP Photo
China imposed its “three red lines” in August 2020 to curb excessive leverage among the nation’s indebted developers in a move to stem a systemic crisis. The move shut many out of the capital markets, triggering a liquidity squeeze. Chinese home builders have defaulted on more than US$160 billion of junk-rated bonds since 2020, according to Goldman Sachs.

Shares of Sino-Ocean fell 1.6 per cent to HK$0.30 at 3pm local time in Hong Kong trading. The stock has lost 29 per cent of its market value so far this year.

The Beijing-based developer blamed the slowdown in the overall real estate market for its losses as profit margins narrowed and provisions for impairment of property projects increased, Tuesday’s filing showed.

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Contracted sales in the first two months this year amounted to 2 billion yuan, versus 8.4 billion yuan in the same period last year, according to the company. They fell by half to 50.5 billion yuan in 2023 and by 26 per cent to 100.3 billion yuan in 2022.

Its cash resources dwindled to 9.4 billion yuan on June 30 last year from 27.1 billion yuan a year earlier, according to its interim report to shareholders in September last year. Net gearing rose to 183 per cent from 85 per cent over the same period.

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China Vanke saw combined contracted sales in January and February, which included a week-long Lunar New Year holiday, amounted to 33.5 billion yuan. That is a 43 per cent drop from the same period in 2023. Country Garden’s sales plunged 80 per cent to 9.2 billion yuan in the same corresponding period.

The slump is broad across the nation. Sales at China’s top 100 developers fell at an annual rate of 49 per cent in the first two months this year to 421 billion yuan, according to data compiled by China Real Estate Information Corp.

Sino-Ocean, which counts some state-owned enterprises among its key shareholders, has had to seek forbearance from creditors. In January, it managed to delay repayment on seven onshore bonds and some asset-backed securities totalling 18.3 billion yuan.

It missed interest payments on some dollar-denominated bonds in September. There has not been an update on any negotiations with offshore creditors about its debt restructuring plan.

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