Evergrande lost more money in 2021, 2022 than Microsoft’s entire profit last year

Late Monday, China Evergrande Group finally reported its financial data for both 2021 and 2022 in stock filings to Hong Kong’s exchange. The developer had to release its financial results before it could start a debt restructuring process, according to the South China Morning Post. Hong Kong’s stock exchange also required releasing the results as one step in the process of resuming trading of Evergrande shares, suspended since March 2022. 

Evergrande reported net losses of $66 billion and $15 billion in 2021 and 2022 respectively. To compare: Evergrande’s combined losses, at $81 billion, are greater than the GDP of Croatia (at $71 billion), or Microsoft’s entire 2022 profit (at $72 billion).

Evergrande’s revenue also collapsed, falling to just $32 billion in 2022 compared to $71 billion in 2020. Evergrande’s liabilities stood at almost $340 billion as of the end of last year, with $85 billion of borrowings. The developer also has just under $2 billion in total cash.

To make matters worse, Evergrande’s auditor said it was unable to offer an opinion on the company’s financial reports, due to a lack of access to necessary evidence. 

Having just made clear the full scale of its financial difficulties, Evergrande now has to convince its creditors to accept a restructuring of its offshore debt. Court hearings are scheduled to start in Hong Kong and the Cayman Islands. The developer defaulted on its offshore debt in December 2021. 

China’s property crisis

The rapid collapse of Evergrande, one of China’s largest real estate developers, is a symbol of China’s property struggles that threaten to drag down its post-COVID economic recovery.

Evergrande, founded in 1996, used billions of dollars in debt to bolster its property holdings as well as expand into areas like electric cars. The size of Evergrande’s liabilities stood out even among China’s debt-happy property sector.

Then Beijing imposed rules in 2020 limiting the amount of debt developers could hold. That pushed Evergrande into a liquidity crisis as financing evaporated. Evergrande was soon leaving projects unfinished and delaying payments to suppliers as it tried to conserve cash.

Evergrande’s problems soon spread to other developers, several of whom also faced a liquidity crunch, and thus delayed construction and vendor payments. The uncertainty dragged down new home prices, which put even more pressure on overleveraged developers.

The housing crisis even led to protests last year as hundreds of thousands of buyers across the country refused to pay back their mortgages, citing construction delays. 

Even completed projects remain empty as developers struggle to sell new homes. Nearly one-fifth of homes in Nanchang, the capital of Jiangxi province, are vacant, according to the New York Times. 

A stagnant recovery

China’s burst housing bubble is a significant headwind for an already stagnating economic recovery. 

China’s economy grew by just 6.3% year-on-year last quarter, coming in below consensus expectations. Exports also plunged last month, and the country is now flirting with deflation. China’s youth unemployment hit a new record last month, with 21.3% of those aged between 16 and 24 now out of work. 

Real estate, which contributes about a quarter of the economy, also isn’t improving. An index of Chinese home prices tallied by the country’s statistics bureau fell by 2.2% year-on-year last month. The sector will likely have “persistent weakness” for years, investment bank Goldman Sachs predicted last month.

Last week, China extended measures to support the property sector until the end of 2024. First imposed in November, the measures include reducing the size of down payments and interest rates, and ensuring the delivery of completed homes to buyers.