Evergrande and other Chinese real estate giants have significant off-balance sheet debt – JPMorgan

LONDON, Oct. 7 (Reuters) – Investment bank JPMorgan has estimated that struggling Chinese real estate giant Evergrande and many of its main rivals have billions of dollars in off-balance sheet debt which, when added up, increases their leverage ratios.

JPMorgan real estate analysts in China and Hong Kong said the tactic was likely used to help companies appear to be complying with new borrowing cap rules introduced last year, but the Evergrande’s case seems the most extreme.

“Instead of true deleveraging, we believe Evergrande has shifted some of the interest-bearing debt to off-balance sheet debt,” JPMorgan analysts said. “Commercial papers, wealth management products and perpetual equity securities, etc., which are not formally recorded as debt”.

They estimated that Evergrande’s “net indebtedness”, as debt as a company’s equity ratio is known, was at least 177% at the end of the first half of the year, in the year. instead of the 100% reported by its accounts.

“It is possible that actual debt is even higher, as data on some off-balance sheet debt is not publicly available,” JPMorgan added, saying that “disguised” debt as it called it was 55% of the global debt of Evergrande. .

Other large companies with debt levels that were likely to be higher than officially reported include R&F Properties (2777.HK) at 139% vs. 123%, Sunac China Holdings (1918.HK) at 138% vs. 87% reported and Country Garden (2007 .HK) 76% versus 50% reported.

Reporting by Marc Jones, editing by Nick Zieminski

Our Standards: Thomson Reuters Trust Principles.