By Mario Marroquin
The board of Chinese property developer Country Garden Holdings
Company issued a profit warning last week and stated net earnings may have
plunged by as much as 70% in the first half of the year. The board of the property
developer cited numerous factors afflicting the sector and leading it to issue
the warning, including the COVID-19 pandemic, a decrease in gross profit margin
for the real estate sector in light of lower gross profit recognition, an
increase in property impairment, and losses due to foreign currency exchange
fluctuations.
According to the Financial Times, Country Garden has not
defaulted on its outstanding debt, but the developer lost its investment-grade
rating earlier in the week after Fitch downgraded it to junk bond status on
Tuesday.
The board said that based on the information available to
management for the first six months of 2022, “the group is expected to record a
core net profit ranging from RMB 4,500 million [US$ 657 million] to 5,000
million [US$ 730 million] and the net profit attributable to shareholders
ranging from approximately RMB 200 million [US$ 29 million] to RMB 1,000
million [US$ 146 million] for the half-year ended 30 June 2022.”
Country Garden’s core net profit and net profit attributable
to shareholders for the first six months of 2021 were RMB 15,200 million [US $2.22
billion] and RMB15,000 million [US$2.2 billion], respectively.
Fitch Ratings said Country Garden’s sales in July dropped
40% year-over-year to CNY 215 billion [US$ $31.4 billion]. Country Garden’s
sales were down 13% on a month-to-month basis in July after two months of
growth in May and June, according to the credit rating agency.
According to the Official Monetary and Financial
Institutions Forum (OMFIF), new apartment sales declined by 35% year-over-year
for the first five months of 2022, while housing prices declined in more than
two-thirds of the 70 largest and medium-sized Chinese cities monitored by the
National Bureau of Statistics.
Housing construction starts declined 45% year-over-year by
the end of June, according to OMFIF.
Country Garden is set to release H1 2022 results in late
August.