Deaths at building sites roil Chinese developer Country Garden's push for speed

SHANGHAI (BLOOMBERG) – Back in April, giant Chinese developer Country Garden Holdings ordered its thousands of staff to move faster in getting projects to market. The human and financial cost of the emphasis on speed is now coming into focus, after deadly accidents at its building sites caused the stock to crash.

Country Garden shares plunged 17 per cent this week, lopping off US$ 6 billion (S$ 8.2 billion) in market value, after a July 27 announcement that it was temporarily halting all 2,200 projects nationwide for safety checks prompted by a six-fatality accident in Anhui province. Another person died at a Shanghai site in June.

The rare missive to employees in April illustrated the pressures on an industry racing to finish residential projects just as the government is busy clamping down on rampant price gains.

But the go-fast approach has now earned the developer a sharp rebuke from Shanghai authorities, scorn on social media and even admonitions from analysts.

“These accidents have damaged its reputation significantly,” CGS-CIMB Securities Ltd. analysts led by Raymond Cheng wrote in a note published this week, citing four incidents in recent weeks. “Local managers are under huge pressure to meet sales targets.” The analysts kept their “reduce” rating on the stock.

In a statement to Bloomberg News, the company pledged enhanced safety and vowed to get rid of external construction teams that fail to meet safety standards. However, it said its targets for new building starts and project completions are unchanged.

Some analysts stand by their bullish outlook. Goldman Sachs Group on July 31 reiterated a buy rating on Country Garden, predicting it will overcome its near-term challenges and continue to grow rapidly. The recent negative events will be an impetus to keep improving operational and product standards, Goldman analysts led by Wang Yi wrote.

In April, Chairman Yeung Kwok Keung told more than 4,000 employees that sales turnover was “too slow”, according to a document seen by Bloomberg News at the time. The company was losing some of its edge, said President Mo Bin. Country Garden threatened to fire heads of residential projects if sales started more than seven months after a land purchase.

That sense of urgency fueled Country Garden’s meteoric rise: It was China’s biggest developer by contracted sales last year at 550 billion yuan (S$ 110 billion), up from seventh in 2015. It’s now compounding Country Garden’s woes, with the shares falling to an 11-month low on Friday.

In the worst accident, temporary housing for construction workers collapsed during a fierce rainstorm in Lu’an in Anhui province.

In Shanghai, a falling concrete slab landed on six workers, killing one, during the construction of a sales and marketing centre at a residential complex, according to a local safety bureau, which criticised the company for “blindly” accelerating building work.

President Mo bowed in apology during a media briefing at the company’s headquarters in Foshan city, Guangdong, on Friday, telling reporters that construction teams can now report potential safety issues directly to him, according to news service Sina.com.

Bank of America analysts Jeffrey Zeng and Karl Choi said in a note published July 31 that only a change in Country Garden’s “pursuit of pace” philosophy may alleviate safety risks in the long term.

Moody’s Investors Service sees the firm’s sales growth slowing as safety issues come to the fore and Country Garden “strives to improve its construction processes.”

On a call with analysts this week, Country Garden said it would stick with its “high-asset turnover strategy,” largely blaming an outsourced construction team for the Anhui accident, according to the Bank of America analysts.

Speed in getting projects to market may never have been more of an imperative. Red-hot demand in the third- and fourth-tier cities where Country Garden has most of its projects may cool before the middle of next year, according to Oscar Choi, a former Citigroup property researcher.

“That’s why Country Garden is eager to sell,” Choi said in an interview at a conference in Sanya. “It has to get its harvest in before the winter comes.”

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