HONG KONG : China Evergrande Group's shares and bonds extended declines on Wednesday, a day after the debt-laden developer warned of default risks and legal action from creditors as it scrambles to repair its balance sheet.
Evergrande, which has more than US$300 billion in total liabilities, has been scrambling to raise the funds it needs to pay its many lenders and suppliers, with regulators and financial markets worried that any crisis could ripple through China's banking system.
Reporting first-half earnings on Tuesday, Evergrande said it would implement measures to improve cashflow, including adjusting project development timetables, renewing borrowings and disposing of equity interests and assets. But it cautioned that if it was not successful, it could default on borrowings and could see more litigation.
While net profit jumped on asset sales, its income that includes non-controlling interests slid 29per cent. In addition, its gross profit margin tumbled 12.9per cent in the first half from 25per cent a year ago due to a drop in sales prices and delivered area.
Citi analyst Griffin Chan said in a report he expects a loss in Evergrande's core property business for the full-year, and cut its earnings per share estimate for the next two years by 59per cent and 60per cent due to lower margin assumptions.
He also slashed its target price to HKUS$4 from HKUS$13.5.
Shares of the country's No. 2 developer fell as much as 2.5per cent in Tuesday morning trade to HKUS$4.25. The stock has lost more than 70per cent of its value this year.
The mid-price of Evergrande's 7.5per cent June 2023 dollar bond was last quoted at 36.92 cents by financial data provider Duration Finance, down nearly 2 cents.
Its 6.98per cent July 22 exchange-traded puttable bond was the third-biggest loser among corporate bonds on Wednesday, according to the Shanghai Stock Exchange, falling 0.15per cent to 66.7 yuan.
(US$1 = 6.4633 Chinese yuan)
(Reporting by Donny Kwok and Clare Jim in Hong Kong, Andrew Galbraith in Shanghai; Editing by Anne Marie Roantree and Edwina Gibbs)