Under the siege of the city, China Aoyuan struggled to break away

21st Century Business Herald reporter Wu Shuying reported from Guangzhou

Even if real estate companies are eager to survive, the confidence of the capital market is still very weak.

Just like China Aoyuan, which has frequently issued self-help signals and planned to sell assets recently, although its chairman of the board of directors, Guo Ziwen, has repeatedly spent huge sums of money to buy back US dollar bonds and other bills this year, and it has not yet defaulted on public market debt, investors' concerns have not weakened.

On November 16, S&P once again downgraded Aoyuan's long-term issuer credit rating from "B" to "CCC" and downgraded the long-term issuance rating of its outstanding senior unsecured notes from "B-" to "CCC-", with a "negative" outlook. It should be emphasized that this is the same credit rating as fantasia, Blu-ray and other housing enterprises.

The current situation of China Aoyuan is no different from that of other real estate enterprises that have encountered risks. Since 2015, China Aoyuan's sales scale has crossed from 10 billion to 100 billion, and the debt indicator is even better than the average of its peers, but the capital market still has doubts about its off-balance sheet liabilities.

Although China Aoyuan has tried to create a positive phenomenon for many years, the test came when the market quickly slid to the freezing point. With the announcement of the sale of property management service assets by China Aoyuan officials and the transfer of several of its urban renewal projects to partners, the fast-growing real estate company has finally reached the threshold of choice.

Survive with a broken arm

The problem of China Aoyuan's capital chain has always been in the middle of nowhere. In fact, compared with other real estate enterprises that have already experienced liquidity problems, Aoyuan has not had a clear and indicative event at least so far, and from the perspective of the node of its repurchase of bonds and even the time of debt maturity, its capital chain pressure seems to be within a relatively controllable threshold.

However, the disposal of Assets of China Aoyuan is more resolute than that of other real estate companies.

On the evening of November 4, China Aoyuan and Aoyuan Health jointly announced that Aoyuan Health was engaged in preliminary discussions with a number of independent third parties on the possible sale of the rights and interests of certain subsidiaries that provided property management and other related services. This is the first time in recent times that it has disclosed plans to dispose of its assets.

Shen Meng, executive director of Chanson Capital, analyzed to the 21st Century Business Herald reporter, "As a small and medium-sized housing enterprise, China Aoyuan does not have many assets that can be used to (quickly) reduce the debt ratio, and the property management service is a relatively high-quality part, which can return more funds at present." ”

When Aoyuan Health was not yet under the control of others, China Aoyuan immediately announced another asset disposal case of the group. According to the announcement of China Aoyuan on November 14, on November 12, Aoyuan Hong Kong Company, a wholly-owned subsidiary of China Aoyuan, sold all the equity and debt rights of three BVI companies to a third party for HK$900 million.

China Aoyuan said it expects an estimated loss of approximately HK$177 million to recognize the disposal and that the net proceeds from the disposal are intended to be used to repay loan financing and as general working capital of the Group.

Not only that, in the urban renewal that China Aoyuan regards as a heavy warehouse plate in the future, its assets are also constantly moving. Qixinbao data shows that on November 14, 2021, the shareholding ratio of Guangzhou Aoyu Liyuan Real Estate Co., Ltd., a subsidiary of Aoyuan, dropped from 100% to 51%, and Guangzhou Jinyuan Hongda Real Estate Co., Ltd., a subsidiary of Century Jinyuan, undertook 49% of the shares. This project company is the main developer of the old renovation of Liwan Dongyuan Village.

In addition, on November 9, Guangdong Aoyuan Commercial Real Estate Group Co., Ltd. also pledged 19.62% of the equity of Guangdong Aoyuan Urban Renewal Group Co., Ltd. to Science City (Guangzhou) Urban Renewal Group Co., Ltd.

"Nowadays, whether it is the property sector or the old renovation project, (Aoyuan) has to sell or not to sell, and now it can sell more." Huang Lichong, president of Huisheng International Capital, pointed out in an interview with the 21st Century Business Herald reporter.

Bai Wenxi, vice chairman of the China Enterprise Capital Alliance, believes that whether it is a rights issue, a sale of shares or a sale of projects, there is only one common purpose for enterprises, that is, to protect the liquidity of the enterprises themselves and ensure that the credit of enterprises in the open market is not broken. Because open market credit is the lifeblood of enterprises, defaulting in the open market is not only a matter of not being able to issue dollar bonds and various financing products, but also causing enterprises to fall into a debt spiral and fall into a credit black hole.

Liquidity "peril"

Although it has taken the initiative to reduce its posture in asset transfer, China Aoyuan has encountered today's dangerous situation, and its own development strategy is also worth reflecting on.

In the past few years, China Aoyuan has achieved a leap in scale through mergers and acquisitions, cooperative development and urban renewal models. In 2015, the sales scale of China Aoyuan was only 15.17 billion yuan, and in 2020, this figure has soared to 133.01 billion yuan. From the perspective of land reserves, it has not made much achievements in the open market, but has done large-scale through other diversified land acquisition channels, especially mergers and acquisitions and cooperative development.

For comparison, public data show that in 2020, China Aoyuan will account for about 57% of the value of land through mergers and acquisitions, 27% of the bidding, auctioning and listing, and 16% of urban renewal and others.

After the introduction of the "three red lines", the expansion model of China Aoyuan showed its vulnerability.

When China Aoyuan's high-debt and high-leverage model hits the market downturn, its rapidly rising debt scale becomes a burden. According to the annual reports of China Aoyuan, its asset-liability ratio increased from 77.97% in 2016 to 83.34% in 2020, and the total liabilities increased from 51.787 billion in 2016 to 271.426 billion in 2020, and the total liabilities increased by 5 times.

In the first half of this year, the debt level of China Aoyuan was slightly optimized, and its asset-liability ratio after excluding pre-collection was 78.9%, the net debt ratio was 80.7%, and the cash short-term debt ratio was 1.35, which was a "yellow file" enterprise.

However, the peak of China Aoyuan's debt repayment will arrive in the near future, reflecting the insecure side of its debt structure. According to Aoyuan's interim report this year, as of the first half of this year, its cash and bank deposits were 60.645 billion yuan, the total liabilities were 262.84 billion yuan, and the overall scale of interest-bearing liabilities was as high as 111.311 billion yuan, of which 51.722 billion yuan needed to be repaid within one year, accounting for about 46.5%.

Looking back, in the first half of this year, the organizational structure adjustment carried out by China Aoyuan has made the outside world smell different.

In March this year, Aoyuan released a news that Aoyuan Group will directly manage the real estate development business of real estate groups and commercial real estate groups, and the two secondary groups will focus on the primary development business of their respective urban renewal projects and the revitalization of existing assets. After the adjustment, the real estate development business has been adjusted from the original four-level control of the group headquarters - second-level group - regional headquarters - city company to the three-level control of the group headquarters - regional - city company, or the two-level control of the group headquarters - city company. An employee of Aoyuan City pointed out in an interview with the 21st Century Business Herald reporter that in this process, some employees automatically left their jobs.

In fact, in the brightest 2019, Aoyuan also relocated its real estate headquarters to Shenzhen and started a large-scale expansion, but with this adjustment, the real estate headquarters in Shenzhen also disappeared.

At the same time as the organizational structure adjustment, China Aoyuan's expansion in the land market this year has also almost stagnated, and these signals have aroused the vigilance of investors. Since October this year, after the liquidity crisis of some housing enterprises broke out, the credit rating of China Aoyuan has also been downgraded many times.

On November 13, international rating agency Fitch downgraded the default rating of China Aoyuan's long-term foreign currency issuers from BB to B+, adjusting its outlook to negative, noting that Aoyuan had "difficulties in refinancing" and that "a large number of bonds were about to mature".

In the research report, Fitch pointed out that China Aoyuan currently has basically no capital market financing channels, and it is expected that China Aoyuan will use net cash flow to pay off debts that are about to mature, while the company's cash-to-short-term debt ratio is only slightly more than 1 times, which may not be enough to buffer the current turbulent market environment.

According to the 21st Century Business Herald reporter, in addition to the cash repatriation of China Aoyuan through the transfer of assets, a number of its ABS private equity products are also undergoing rollover negotiations. On November 22, Aoyuan announced that the extension plan of "Zhongshan Securities-Aochuang Phase II Asset-Backed Special Plan Priority Asset-Backed Securities" has been approved. The ABS issue size is 816 million yuan, and the maturity date of the bond is May 20, 2022.

With this as a starting point, the battle of China Aoyuan will be launched.

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