Evergrande said it had slashed its debt by almost a quarter despite a drop in earnings, as the Chinese property group races to respond to Beijing’s crackdown on highly leveraged real estate companies.

The group led by Hui Ka Yan, once China’s richest man, has come under intense pressure since the Chinese government tightened controls over property developers in response to ballooning house prices during the pandemic.

The company’s interest-bearing debt stood at Rmb674bn ($103bn) at the end of March, down 23 per cent from a year earlier. After a Rmb42.5bn cut in the first quarter, China’s most indebted property real estate developer expects total liabilities to drop to Rmb560bn by the end of this year and as low as Rmb350bn by mid-2023.

“Looking back at history, human and society development is full of constant disasters and challenges, as well as full of constant rebuilding of confidence and glory,” the company said in its annual results on Wednesday.

Evergrande said core business profit, which strips out one-off gains and losses, had fallen 26 per cent to Rmb30.13bn, while revenues rose 6 per cent year on year to Rmb507.25bn. Evergrande’s gross margin — another key metric of business performance — fell to 24.2 per cent, its lowest level since 2004, according to Bloomberg data. 

Beijing’s “three red lines” introduced in August in response to house price increases limit companies’ borrowing across three metrics: debt to cash, net debt to equity and debt to assets. Property groups such as Evergrande are now being closely watched and judged on whether they fall in line.

CLSA analysts earlier noted the group had made progress on its plan to meet Beijing’s requirements, including its decision to carve off shares in subsidiaries to boost its near-term cash position. 

“We believe the strong sales momentum, together with its efforts to deleverage, bodes well for its earnings growth and balance-sheet improvements over the next three years,” the analysts said. Anxieties over Evergrande’s towering debt obligations have also been eased by the company’s early repayment in January of a $2bn bond.

China-linked corporate debt has drawn international investor attention in recent months amid a spate of defaults. Chinese companies have about $574bn of offshore dollar-denominated debt, according to Dealogic data, with $33bn maturing this year among property groups alone.

China Fortune Land Development, which specialises in industrial parks, this month defaulted on a $530m bond. International bondholders owed tens of millions of dollars by Tsinghua Unigroup are seeking to freeze the Beijing-backed semiconductor group’s overseas assets over its debt problems.

In an update on China’s broader property sector Goldman Sachs said it expected developers to “meaningfully slow their land acquisition pace” this year ahead of Beijing’s 2023 deadline for the industry’s “self-resolution” to its debt problems.

According to a separate survey of top management of more than 20 Chinese property executives by CLSA, developers generally expect a “mild” increase in home prices and sales growth this year despite weaker outlooks for sectors such as commercial property and hotels.

Evergrande’s results were reported after trading closed in Hong Kong. 

Additional reporting by Sherry Fei Ju in Beijing

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