Forensic Analyst

Jason Yap, CFA

Forensic Accounting

As at H1 2021, <a href="https://www.smartkarma.com/entities/china-evergrande-group" target="_blank" data-smartkarma-citation="entities:479:1" rel="noopener">Evergrande Real Estate Group (3333 HK)</a> had total assets of RMB2.37 trillion and total liabilities of nearly RMB2 trillion. Current liabilities (i.e. due and payable within the next 12 months) sum up to RMB1.57 billion (approximately 78% of total liabilities). 
For context, China's real estate industry contributes approximately 29% of total GDP, which is in turn a shade under RMB100 trillion. As China's 2nd largest property developer, Evergrande's liabilities account for 7% and 2% of the real estate sector and GDP output respectively. 
Yet, the above reported financial figures still do not represent the economic reality and true financial obligations of the company. It is widely reported that real estate companies companies such as Evergrande usually have large off-balance sheet liabilities.
In this article, we delve into the following topics:
<ul>
<li>Overview of Off Balance Sheet ("OBS") Financing and Why do Companies do it?</li>
<li>How did Evergrande debts grow so fast and so large?  What are its OBS liabilities?</li>
</ul>
We will conclude with a brief commentary on what investors can expect as the Evergrande situation continues to unfold.

As at H1 2021, Evergrande Real Estate Group (3333 HK) had total assets of RMB2.37 trillion and total liabilities of nearly RMB2 trillion. Current liabilities (i.e. due and payable within the next 12 months) sum up to RMB1.57 billion (approximately 78% of total liabilities). 
For context, China's real estate industry contributes approximately 29% of total GDP, which is in turn a shade under RMB100 trillion. As China's 2nd largest property developer, Evergrande's liabilities account for 7% and 2% of the real estate sector and GDP output respectively. 
Yet, the above reported financial figures still do not represent the economic reality and true financial obligations of the company. It is widely reported that real estate companies companies such as Evergrande usually have large off-balance sheet liabilities.
In this article, we delve into the following topics:

Overview of Off Balance Sheet ("OBS") Financing and Why do Companies do it?
How did Evergrande debts grow so fast and so large?  What are its OBS liabilities?

We will conclude with a brief commentary on what investors can expect as the Evergrande situation continues to unfold. 

Evergrande (3333 HK) - Understanding Its Off-Balance Sheet Financing