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China Evergrande first-half core profit tumbles by a quarter as costs rise

By Clare Jim

HONG KONG (Reuters) - China Evergrande Group, the country's second-largest homebuilder, posted a 23 percent drop in first-half core profit, weighed down by a slew of higher costs, including those for building materials to marketing.

Although revenue jumped 12.6 percent to 87.5 billion yuan as government incentives bolstered the housing market, core net profit, which does not include revaluation gains or losses, slid to 7.8 billion yuan ($1.2 billion).

Highly acquisitive Evergrande has been in the spotlight after building up a stake of almost 7 percent in rival China Vanke, which is embroiled in a high-profile corporate battle with financial firm Baoneng Group.

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That stake has exacerbated fears about its huge debt load.

The company said that its debt-to-equity ratio dropped six basis points to 92.9 percent compared with levels at the end of December.

"Our high debt ratio is because we've been acquiring land. We will see high growth in sales in the next 3-5 years, and the gearing will come down because of that," Chief Executive Xia Haijun told an earnings briefing.

Evergrande, however, relies heavily on perpetual bonds which are not classified as debt and Credit Suisse has calculated Evergrande's debt-to-equity ratio at the end of 2015 would have stood at 314 percent if its perpetual bonds were reclassified as debt.

Its perpetual bonds rose 53 percent from the end of the year to 116 billion yuan.

Including its acquisition of Vanke shares, Evergrande has splurged $4 billion on banks, construction companies and rivals so far this year, adding to a sprawling business that includes a domestic football team, a New Zealand dairy firm and over $56 billion in debt.

Xia said Evergrande used proceeds from home sales to buy shares in Vanke. Vanke, China's top homebuilder, said last week Evergrande had not responded to its queries about its intentions in building up the stake.

Evergrande's Hong Kong-listed shares closed up 1.4 percent ahead of the announcement, outpacing a 0.9 percent gain for the benchmark Hang Seng Index.

Its earnings also come amid market speculation that Evergrande is considering a backdoor listing on the mainland, particularly after it bought a majority stake in a small mainland property developer Calxon Group.

($1 = 6.6779 Chinese yuan)

(Reporting by Clare Jim; Editing by Edwina Gibbs)