Bigu Yi Yuan Reports 9 Trillion Won Net Loss... "Continued Financial Deterioration May Lead to Default"

Recorded 48.9 Billion Yuan Net Loss in First Half
Lowered Real Estate Sales Prices Increase Deficit
Requested Extension of Bond Grace Period
Reviewing Sale of Real Estate and Other Assets

Chinese real estate developer Biguiyuan (Country Garden) reported a net loss close to 9 trillion won in the first half of this year, warning that if losses continue, it could fall into default. Since Biguiyuan's business scale is four times larger than that of Evergrande Group, which previously declared default, concerns are rising that it could cause significant ripple effects in the Chinese real estate market.

Biguiyuan (Country Garden)
[Image source=Bloomberg]

According to the financial report submitted by Biguiyuan to the Hong Kong Stock Exchange on the 30th, Biguiyuan recorded a loss of 48.9 billion yuan (approximately 8.87 trillion won) in the first half of this year. In the first half of last year, the company posted a net profit of 612 million yuan. Revenue was recorded at 226 billion yuan (approximately 41 trillion won), a 39% increase compared to the same period last year. Since the liquidity crisis of Biguiyuan emerged at the beginning of the year, its stock price has fallen by 69% in six months, turning it into a penny stock. When the Chinese authorities began real estate regulations in 2019, the stock price soared to as high as 12.94 Hong Kong dollars, but it closed at 0.88 Hong Kong dollars on the previous day, down 3.3% from the previous trading day.

Biguiyuan stated, "Due to difficulties in sales and financing, the group's liquidity is under unprecedented pressure," adding, "If financial performance continues to deteriorate, a default may occur." It further explained that such significant uncertainty in the company's finances raises doubts about the company's going concern status.

Biguiyuan explained that its financial deterioration was influenced by excessive reliance on the low-priced real estate market. To sell completed properties on time despite huge deficits, the company adjusted the sales prices of some properties according to sales volume, which placed a heavy burden on revenue and net profit.

It also admitted that it failed to predict potential risks lurking in the real estate market in a timely manner and did not take appropriate measures. Biguiyuan said, "We failed to recognize that there was a significant change in the supply-demand cycle of the real estate market and could not prepare countermeasures," adding, "We are reflecting on the company's crisis and will introduce various debt management measures to gradually relieve liquidity pressure."

First, Biguiyuan plans to request creditors to extend the grace period by 40 days for bonds worth 3.9 billion yuan maturing on the 2nd of next month. Currently, the total principal and interest of bonds that Biguiyuan must cover amount to 15.72 billion yuan. Starting with the 3.9 billion yuan bond next month, maturities will continue to come due until early next year.

Asset sales are also being considered as an alternative solution to the debt problem. In the financial report, Biguiyuan stated, "The company holds sufficient land and net assets," and pledged to do its best to improve liquidity by enhancing sales performance and reviewing low-profitability assets to reduce unnecessary management costs.

As the possibility of Biguiyuan falling into default increases, a sense of crisis is spreading in the Chinese real estate market. Biguiyuan holds construction projects four times larger than Evergrande Group, which declared default earlier. Moreover, since the company has focused on building housing mainly in regions outside major cities like Beijing and Shanghai, the impact on local governments is also expected to be significant.

Bruce Pang, Chief Economist for China at global integrated real estate services firm JLL (Jones Lang LaSalle), said, "Almost all private developers are facing cash flow pressures, so a chain default crisis among real estate developers will continue," adding, "Even if the government implements support policies, it will take time for these policies to affect companies' home sales, new construction starts, and liquidity flows."

This content was produced with the assistance of AI translation services.