Connect with us

Business

Analysis-China’s property woes put prestige global projects in play

Published

on

October 31, 2021

By Marc Jones and Tommy Wilkes

LONDON (Reuters) – China’s property sector woes could spell trouble for prestige mega-projects in London, New York, Sydney and other top cities as the developers behind them scramble for cash.

While China Evergrande Group’s struggles have dominated the crisis, the risk to multi-trillion dollar global property markets stems from some of its rivals that have spent the last decade competing to build ever taller and grander skyscrapers.

Advertisement

Shanghai-based Greenland Holdings, which breaches as many of China’s debt “red lines” as Evergrande, has just built Sydney’s https://www.greenlandaustralia.com.au/en/greenland-centre tallest residential tower, has plans to do the same in London https://spirelondon.com and has billions of dollars worth of projects in Brooklyn, Los Angeles, Paris and Toronto.

The developer says it remains committed to its flagship builds including its long-delayed, 235 metre-high Spire London tower, but it put part of another major London site on the market earlier in the year and other firms are hoisting for sale signs too.

Evergrande and Kaisa Group, which was the first Chinese property firm to default back in 2015, are both trying to sell Hong Kong buildings to drum up desperately-needed cash., while Oceanwide Holdings has just had what was supposed to be San Francisco’s tallest tower seized by disgruntled creditors.

“I suspect, as with anything, if you’re running into liquidity issues you start to look to sell your investment properties,” said Omotunde Lawal, head of emerging-markets corporate debt at asset manager Barings, which holds some Chinese property firms’ bonds.

As many Chinese firms overpaid for prime overseas sites in the scramble to secure them, the question is who will buy them, Lawal added. “Probably they are unlikely to get cost, so I think it depends on just how desperate they get.”

Advertisement

SIZABLE ASSET SALES

Guangzhou R&F Properties is another major firm in focus after it required an emergency cash injection this month. It has two giant unfinished developments in London, including one with a dozen skyscrapers next to the Thames https://www.thamescity.com, as well as numerous builds in Australia, Canada and the United States.

An R&F spokesperson in London said it remained “fully committed” to all its British projects.

But with nearly $8 billion of debt to repay in the next 12 months, only $2 billion of freely available cash and sales down nearly 30% year-on-year last month, major credit rating agencies say it will need to cash in some chips.

“R&F’s capacity to handle its near-term debt maturities will hinge on the execution of sizable asset sales,” S&P said, predicting that buildings, hotels and various stakes in projects could all be sold. Fitch meanwhile estimates R&F has 836 billion yuan ($130 billion) of assets that could potentially be sold.

Advertisement

R&F, Greenland, Evergrande and Kaisa have all declined to comment further on their finances. Oceanwide said last week it was “actively discussing” the situation with its San Francisco project with the creditors involved.

SPENDING SPREE

Chinese developers went on a major international spending spree between 2013 and 2018, but the splurge has slowed abruptly since as Beijing has moved to curb firms’ excessive debts.

After pouring more than 28 billion pounds into London projects in 2018, they have spent 1.5 billion pounds in the first half of 2021, the lowest amount since 2012, data from Real Capital Analytics shows.

Figures from estate agents Knight Frank paint a similar picture in Australia, New York and other top north American cities, where Greenland, R&F and others big firms including Country Garden, Poly Property and China Vanke also spent tens of billions of dollars a year.

Advertisement

Stephanie Hyde, UK chief executive of real estate firm Jones Lang LaSalle, which markets for R&F in London and another firm called Xinyuan which has just narrowly avoided default, told Reuters she wasn’t aware of any Chinese firms looking to sell-up due to strains back in China.

If they did decide to sell though, they were likely to find buyers relatively quickly she added, due to the flood of international investment money current circling global property markets like London where prices are now at a record high.

Chris Gore, a central London principal at real estate firm Avison Young, said he wasn’t aware of any sudden selling plans either, but that the pressure would grow on Chinese firms if the crisis at home continued.

“If they needed to sell and could sell for a profit, then I think they would just sell,” Gore said. “There wouldn’t be a problem if a few wanted to sell, but if they all suddenly wanted to exit at the same time, they couldn’t.”

($1 = 0.7263 pounds)

Advertisement

($1 = 6.4050 Chinese yuan renminbi)

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Chinese property stocks come crashing down https://tmsnrt.rs/3Cwknfh

Monthly Land Sales in Mainland China (billions of yuan) https://tmsnrt.rs/3uGApQv

China’s most indebted property companies https://tmsnrt.rs/3u2Onfv

Advertisement

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

(Additional reporting by Clare Jim in Hong Kong; Editing by David Evans)

Continue Reading
Advertisement

Business

Wood’s ARK fund fails to join broad market rally as lockdown stocks slip

Published

on

November 30, 2021

By David Randall

NEW YORK (Reuters) – The broad market relief rally on Monday left many so-called stay-at-home stocks behind, dealing another blow to Cathie Wood’s ARK Innovation fund.

The $18.6 billion ARK Innovation fund, which outperformed all other U.S.-based equity funds last year due to its outsized holdings of stocks that rallied during the economic lockdowns, dropped 0.5% in morning trading Monday, well behind the 1% gain in the S&P 500.

Advertisement

The benchmark index dropped nearly 2.3% Friday on news a new coronavirus variant, now known as Omicron, had been identified in southern Africa, spurring new travel restrictions worldwide. Yet global equity markets made up some of that lost ground Monday on reports the new variant may produce mild symptoms.

Signs Omicron will not deal a severe blow to the economy are prompting investors to remain in cyclical stocks, said Phil Orlando, chief equity market strategist at Federated Hermes.

“This is not February of 2020 when the world is about to shut down. If anything we think the economy will continue to improve from here,” he said.

ARK Innovation’s declines were widespread Monday, with 8 out of the fund’s 10 largest holdings down for the day. Telemedicine company Teladoc Health Inc, the fund’s second-largest holding, fell 5.1%, while streaming company Roku Inc shed 2.6% and Zoom Video Communications Inc lost 3.2%.

For the year, ARK Innovation is down 14%, while the benchmark S&P 500 is up 23.4%. That underperformance places ARK Innovation among the worst-performing mid-cap growth funds for the year to date, according to Morningstar. It remains among the top-performing funds over the last 5 years.

Advertisement

Ark did not respond to a request to comment for this story.

(Reporting by David Randall; Editing by Mark Porter)

Continue Reading

Business

Oil prices rise on bets OPEC+ will hold off output hike

Published

on

November 30, 2021

By Sonali Paul

MELBOURNE (Reuters) – Oil prices climbed on Tuesday, extending a rebound from last week’s plunge on growing expectations major producers would pause plans to add crude supply in January amid uncertainty over the severity of the Omicron coronavirus variant.

U.S. West Texas Intermediate (WTI) crude futures jumped 99 cents, or 1.4%, to $70.94 a barrel at 0105 GMT, adding to a 2.6% rise on Monday.

Advertisement

Brent crude futures climbed 82 cents, or 1.1%, to $74.26 a barrel, after gaining 1% on Monday.

Oil plunged around 12% on Friday along with other markets on fears the heavily mutated Omicron would spark fresh lockdowns and dent global growth.

The World Health Organization said on Monday Omicron posed a very high risk of infection surges, and several countries stepped up travel curbs. It is still unclear how severe the new variant is and whether it can resist existing vaccines.

With the demand outlook under a cloud, expectations are growing that the Organization of the Petroleum Exporting countries, Russia and their allies, together called OPEC+, due to meet on Dec. 2 will put on hold plans to add 400,000 barrels per day (bpd) of supply in January.

“We think the group will lean towards pausing output hikes in light of the Omicron variant and the oil stockpile release by major oil consumers,” Commonwealth Bank commodities analyst Vivek Dhar said in a note.

Advertisement

Pressure was already growing within OPEC+ to reconsider its supply plan after last week’s release of emergency crude reserves by the United States and other major oil-consuming nations to address soaring prices.

“Following the global strategic reserve releases and the announcement of dozens of countries restricting travel to and from South Africa and neighbouring nations, OPEC and its allies can easily justify an output halt or even a slight cut in production,” OANDA analyst Edward Moya said in a note.

Also weighing on the market is the prospect of a resumption of oil exports from Iran, following upbeat comments from diplomats as talks resumed on Monday between world powers and Iran on reviving a nuclear pact.

(Reporting by Sonali Paul. Editing by Gerry Doyle)

Advertisement
Continue Reading

Business

Main IKEA retailer’s profits jump despite ‘unprecedented challenges’

Published

on

November 30, 2021

By Anna Ringstrom

STOCKHOLM (Reuters) – Ingka Group, the owner of most IKEA stores world-wide, reported on Tuesday a jump in annual profit on the back of record demand for home furnishing as people stay at home more due to the pandemic.

Despite more temporary store closures due to pandemic related restrictions than the year before, and product shortages due to the global supply chain crisis, operating profit in the 12 months through August was up 31% at 1.9 billion euros. Sales were up 6%, to above pre-pandemic levels, with online sales jumping to account for 30% of total sales, against 18% the year before.

Advertisement

Compared to the pre-pandemic fiscal 2019, profit was still down, by 8%, due to high investment levels. Capital expenditure was up 52% on the year, at 3.2 billion euros, as Ingka accelerated investments in digitalisation, new inner-city store formats, existing stores, and distribution and delivery networks.

Chief Financial Officer Juvencio Maeztu told Reuters he expected sales to grow also in the current fiscal year, and profits to be at least as high as in the past year. Investment levels would probably remain at least as high as in the past year, he said.

“Our journey to create a better IKEA forges ahead in a world that faces unprecedented challenges. COVID-19 will continue to impact our business and the communities we are a part of,” the company said in a statement.

“The global supply and transport crisis will require a resilient, flexible response. Efforts across the value chain will continue to mitigate the challenges with product availability, inflation, prices of raw materials and transport that are expected to continue into FY22.”

Budget furniture brand IKEA operates through a franchise system, with Ingka the main franchisee to brand owner Inter IKEA with 392 stores including city stores, and 73 smaller store formats.

Advertisement

Inter IKEA, which is in charge of design and supply, in the past year absorbed substantially higher costs for raw materials and transports, but has flagged it will raise prices to its retailers this year in the face of continued high supply related costs.

Ingka’s Maeztu said in the interview that he could not rule out that Ingka would also raise prices this year.

(Reporting by Anna Ringstrom; editing by Richard Pullin)

Advertisement
Continue Reading
Advertisement

Trending