Evergrande Scraps $15 Billion Solar Push as Property Drops

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Evergrande Group, the parent of China’s most-indebted publicly traded homebuilder, scrapped its 90 billion-yuan ($14.5 billion) plan to branch out into solar power, stymieing its ambitions to become a clean-energy developer.

After surveying the market, Evergrande, owned by billionaire Hui Ka Yan, concluded “the current timing is immature” to enter into solar power, the Guangzhou-based company said in an e-mailed statement to questions seeking an update on the plans. No funds have so far been spent on the solar business, the company added.

“Investing in solar power doesn’t mean you’ll have safe returns,” said Wang Xiaoting, a Hong Kong-based analyst for Bloomberg New Energy Finance. Outsiders are better to “consider other predictable investments.”

The decision to steer clear of solar comes as Chinese developers that used debt to fund their rapid expansion are coming under greater strain as the nation’s real estate market slows. Even by Chinese standards, Hui’s vision for solar energy, which was outlined in a National Business Daily newspaper story last year, was grand.

The company, which specializes in real estate, dairy and sports, had planned to build 9.2 gigawatts of photovoltaic projects in the northern city of Zhangjiakou, the National Daily said in September, citing Hui. Projects of that scale would equal about 29 percent of China’s total installed solar capacity at the end of 2014, according to BNEF data.

Debt Levels

The stock of Evergrande’s Hong Kong-listed business, Evergrande Real Estate Group Ltd., fell for the first time in four days, declining as much as 1.7 percent and was down 0.3 percent at HK$3.63 as of 10:49 a.m. local time. The benchmark Hang Seng Index rose as much as 0.8 percent.

Evergrande’s original plan was confirmed by a public relations manager, who asked not to be identified because she isn’t authorized to speak publicly about the matter.

New home prices in February fell on month in 66 of the 70 cities tracked by the government despite interest-rate cuts and the removal of some property curbs. Sales are falling at the fastest pace since the global financial crisis, BNP Paribas SA economist Richard Iley wrote in a March 18 note.

The financial health of Chinese developers has also come under scrutiny following the near-default of Shenzhen-based Kaisa Group Holdings Ltd. The company, which is currently negotiating with creditors to restructure its debt, said it was unprofitable last year and disclosed a doubling of outstanding debts in the six months ended Dec. 31.

Credit Lines

Evergrande Real Estate joins peers including China Vanke Co. and Country Garden Holdings Co. in reporting a drop in sales this year. The average net debt-to-equity ratio for 18 Chinese developers rose to 95.7 percent as of June 30, jumping from 66.2 percent a year earlier. If treating perpetual equity instruments as debt rather than as equity, Evergrande was the most indebted, with net debt nearly triple its common equity, according to Bloomberg Intelligence.

Evergrande obtained 100 billion yuan in credit lines from four Chinese banks including Bank of China Ltd. in the past two months as sales declined.

Stock investors “may not be interested in seeing the company entering an unfamiliar business,” Jeffrey Gao, a Hong Kong-based equity analyst at Nomura Holdings Inc., said.

China has been boosting the use of solar power to help cut emissions, spurring interests among companies such as GCL New Energy Holdings Ltd. and Evergrande. The nation earlier this month raised its solar installation target for 2015 to as much as 17.8 gigawatts, almost 2 1/2 times as much capacity as the U.S. added last year

Hui’s net worth stands at $5.1 billion, according to the Bloomberg Billionaires Index which ranks the world’s 400 wealthiest individuals.

— With assistance by Feifei Shen

(Update to add share price in sixth paragraph.)
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