https://asia.nikkei.com/Business/Ma...fit-falls-93-in-fresh-blow-to-property-market
HONG KONG -- China's property sector took another hit on Friday, as mainland developer Soho China disclosed a sharp fall in its profit and outlined its dire financial situation just hours after China Evergrande Group filed for bankruptcy protection in a New York court.
Soho China, a Hong Kong-listed midsize developer that focuses on commercial estates, reported a net profit of 13.61 million yuan ($1.89 million) for the first six months of the year, down 93% from a year earlier.
Revenue, mainly in the form of rental income from its properties in Beijing and Shanghai, was down 8% to 821.50 billion yuan, while a sharp drop in gross profit and a reversal in the fair-value assessment of its assets shaved more than 130 billion yuan off the company's bottom line.
The first half of the year was "full of uncertainty," co-CEOs Xu Jin and Qian Ting said in the company's Friday filing. This uncertainty impacted Soho's office leasing business, as "many companies have chosen to adopt prudent development strategies and implement stringent cost control measures."
Soho China also warned of "material uncertainty" over its future due to an unpaid tax bill at a subsidiary that manages Wangjing Soho, its main office and retail property in central Beijing.
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The subsidiary received a notice from the local tax authority in August 2022 ordering it to pay 1.73 billion yuan in land appreciation tax by Sept. 1 of that year, with a surcharge of 0.05% per day for late payment. The company managed to sell 25 commercial property units and pay 30.6 million yuan by the end of June this year, but 1.98 billion yuan, including surcharges, remains outstanding.The local tax authority could add extra penalties equivalent to between 50% of and five times the outstanding amount due. The tax collection law also allows the local authority to seize and sell those properties.
If Soho China is deemed to have defaulted on the tax payment, a portion of the company's bank borrowings with a total principal and interest value of 4.24 billion yuan will become due immediately, under cross-default arrangements.
The developer's total borrowings stood at more than 16 billion yuan at the end of June, while its unrestricted cash and cash equivalents came in at 627.25 million yuan. The company has entered into supplemental agreements with its major lenders to revise repayment terms for a total principal of 7.27 billion yuan, including a missed principal repayment of about 60 million yuan that was due in December 2022.
Soho said there is "no indication" that the banks involved in the cross-default arrangement will demand immediate repayment, based on their latest communications, but the company noted "the existence of a material uncertainty that may cast significant doubt about the Group's ability to continue as a going concern" in the Friday filing.
Meanwhile, Evergrande Group's bankruptcy filing in the U.S. added to wariness over Chinese equity, especially among investors abroad.
Foreign investors continued to dump mainland Chinese stocks via the Hong Kong stock connect arrangement on Friday, selling a net 8.5 billion yuan worth of shares. This reversed the net purchases made during the period after the Politburo meeting on July 24 and Aug. 1, which totaled 53.8 billion yuan. Net sales since then have reached 56.3 billion yuan, data by Chinese provider Wind shows.
The benchmark CSI 300, which includes major shares traded on the Shanghai and Shenzhen exchanges, closed at 3,784.00, 1.7% lower than Thursday, canceling out the gains made since the Politburo meeting.
Hong Kong's Hang Seng Index ended Friday at 17,950.85, down 2.1% from Thursday to close below the 18,000 mark for the first time since last November.
While China Evergrande Group's Hong Kong-listed shares have been suspended since March 2022, its two listed subsidiaries in Hong Kong, Evergrande Property Services Group and China Evergrande New Energy Vehicle lost 16.0% and 9.1%, respectively, on Friday.
