China Evergrande's Debt Crisis Piles Pressure on Suppliers Who Issue Spate of Profit Warnings

China Evergrande's Debt Crisis Piles Pressure on Suppliers Who Issue Spate of Profit Warnings
An aerial view of the 39 buildings developed by China Evergrande Group that authorities issued a demolition order for in Hainan Province, China on Jan. 6, 2022. (Aly Song/Reuters)

The debt crisis of Evergrande Group and other property developers in China has jeopardized their supply partners, as a growing number of Chinese construction and interior design companies write off assets or report profit warnings.

Beijing Jiayu Door, Window, and Curtain Wall Co. projected a loss of as much as 1.4 billion yuan (about $220 million) in 2021, owing to 1.89 billion yuan (about $297 million) in unpaid receivables and commercial bills from Evergrande that are likely to go sour, in its annual earnings forecast last week.

Shenzhen Wenke Landscape Co. also warned, in the latest exchange filing, of a net loss last year as a result of Evergrande's 1.88 billion yuan (about $295.3 million) in defaults and receivables.

As dozens of Chinese suppliers have revealed debts owed by developers like Evergrande, and most China-listed companies begin reporting their annual financial results this month, more such disclosures are expected. Some companies have already set aside provisions, while others have filed lawsuits against the developer in an attempt to reclaim the unpaid bills.

Asia Cuanon Technology, a paint manufacturer, reported a 598 million yuan (about $93.9 million) credit impairment loss linked to a dozen of China's distressed property developers. It stated that Evergrande was accountable for 84 percent of delinquent receivables and commercial bills.

These commercial bills, known in China as “commercial papers,” are short-term IOUs, and have become an important financing means for Evergrande as they aren’t technically classified as debts.

Similarly, Asia Cuanon estimated a net loss of 580 million yuan (about $91.1 million) over last year, wiping out all profits from 2020. 

Shanghai Trendzone Holdings, a residential decorating company, reported it would book a loss as high as 1.2 billion yuan (about $188.5 million) in 2021, reversing a net profit of 133 million yuan (about $20.9 million) the previous year, after earlier saying that unpaid client receivables were piling up.

Trendzone revealed that Evergrande's bills started being overdue as early as April 2021. Recently, it filed 134 lawsuits against Evergrande and its subsidiaries.

Despite some measures by Beijing regulators to ease developers' liquidity stresses and boost the slowing economy, recent data suggest that the problem may worsen.

Guangdong Tianan New Material claimed that Evergrande's 286 million yuan (about $44.9 million) in unpaid debts will contribute to a net loss of up to 65 million yuan in 2021, reversing its 38.28 million yuan (about $10.2 million) profit in 2020.

The company, a ceramic building materials provider, stated that it was proactively pursuing a settlement through negotiations with Evergrande, but that it would most likely have to write off the debt entirely.

Shenzhen Grandland Group, an interior design company, disclosed 3.24 billion yuan (about $508.9 million) in overdue commercial bills issued by what it described as the "top one client and its subsidiaries."

Grandland estimated a loss of up to 5 billion yuan (about $785.3 million) during 2021; it previously mentioned Evergrande accounted for around 45 percent of its 2020 revenue.
On Jan. 26, Evergrande told creditors that it would formulate an initial six-month restructuring proposal in the developer's first communication with them since its finances started to deteriorate a year ago.

Evergrande's crisis has also spread to other Chinese developers struggling to repay their debts, and dented the country's property market, a crucial engine of the world's second largest economy.

Subordinate units of Shimao Group Holdings, Kaisa Group Holdings, and Greenland Group were named in January on a list of Chinese companies "consistently overdue" on commercial paper payments.

And the overall number of such delinquent companies climbed by 26 percent in December over the previous month, reported Reuters, citing the Shanghai Commercial Paper Exchange.