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

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LONDON, Oct 7 (Businesshala) – Investment bank JPMorgan estimates that troubled Chinese property giant Evergrande and several of its major rivals owe billions of dollars in off-balance sheet debt, which, once added, will increase their leverage. Increases the ratio.

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Property analysts in China and Hong Kong at JPMorgan said the strategy has been used to help firms see that they were compliant with new lending cap rules introduced last year, but Evergrande’s case seems to be the most extreme. .

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“Instead of true deleveraging, we think Evergrande has moved some of the interest-bearing debt to off-balance sheet debt,” said analysts at JPMorgan. “Commercial papers, wealth management products and fixed capital securities, etc., which are not officially counted as debt.”

He estimated that Evergrande’s “net gearing”, known as a firm’s ratio of equity to debt, was at least 177% at the end of the first half of the year, with 100% of its accounts reported. Instead.

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“It’s possible that the actual gearing is even higher, as data on some off-balance sheet loans is not publicly available,” JPMorgan said, adding up to 55% of Evergrande’s total debt as “disguised” debt. has been added. .

Other major firms whose gearing levels were more likely to be higher than formally reported were R&F Properties (2777.HK) 139% versus 123%, Sanac China Holdings (1918.HK) 138% versus 87% reported and Country Garden (2007). .HK) reported at 76% versus 50%.

Reporting by Mark Jones, Editing by Nick Ziminsky

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