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Evergrande and other Chinese property giants have sizeable off-balance sheet debt: JPMorgan

Evergrande and other Chinese property giants have sizeable off-balance sheet debt: JPMorgan

FILE PHOTO: The China Evergrande Centre building sign is seen in Hong Kong, China, September 23, 2021. REUTERS/Tyrone Siu//File Photo

LONDON: Investment bank JPMorgan has estimated that troubled Chinese property giant Evergrande and many of its major rivals have billions of dollars worth of off-balance sheet debt that, once added on, ramp up their leverage ratios.

JPMorgan's China and Hong Kong property analysts said the tactic is likely to have been used to help firms look like they were conforming with new borrowing cap rules introduced last year, but Evergrande's case looks the most extreme.

"Instead of true deleveraging, we think Evergrande has shifted some of the interest-bearing debt to off-balance sheet debt," JPMorgan's analysts said. "Commercial papers, wealth management products and perpetual capital securities, etc, which are not officially counted as debt."

They estimated Evergrande's "net gearing," as debt as a ratio of a firm's equity is known, was at least 177per cent at the end of the first half of the year, instead of the 100 per cent its accounts reported.

"It is possible that the real gearing could be even higher, as data on some off-balance sheet debt is not publicly available," JPMorgan added, saying the "disguised" debt as it called it added up to 55per cent of Evergrande's overall debt.

Other major firms whose gearing levels were likely to be higher than formally reported included R&F Properties at 139 per cent versus the 123 per cent, Sunac China Holdings at 138 per cent versus 87 per cent reported and Country Garden at 76 per cent versus 50 per cent reported.

Source: Reuters

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