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Evergrande, others in China have sizeable off-balance sheet debt: JPMorgan

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, according to JPMorgan

JP Morgan | Evergrande | China

Reuters  |  LONDON 

Evergrande Group
Photo: Shutterstock

By Marc Jones

LONDON (Reuters) - Investment bank JPMorgan has estimated that troubled Chinese property giant 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 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 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 177% at the end of the first half of the year, instead of the 100% 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 55% 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% versus the 123%, Sunac Holdings at 138% versus 87% reported and Country Garden at 76% versus 50% reported.


(Reporting by Marc Jones, Editing by Nick Zieminski)

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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First Published: Fri, October 08 2021. 09:00 IST