| A project in Chengdu, Zhongliang, photographed in 2021
In 2018, the performance of Zhongliang Real Estate, a dark horse in the real estate industry, soared, achieving a total contract sales of 101.5 billion yuan, ranking among the 100 billion club for the first time. From less than 20 billion sales in 2016 to more than 100 billion in 2018, Zhongliang Real Estate has expanded rapidly and grasped the dividends of this round of rising cycle.
However, just after the beginning of 2022, Zhongliang has reported large-scale layoffs; at the same time, on the other hand, Zhongliang plans to continue to return some US dollar bonds in advance, which has attracted much attention from the industry. While laying off employees on a large scale, while paying off debts in advance, what happened to the dark horse of the real estate industry?
Layoffs
According to public media reports, on January 16, 2022, Zhongliang Holding Group (02772. HK) issued the Notice on Matters Related to the Organizational Adjustment of the Headquarters of the Holding Group, indicating that due to the adjustment of the corporate structure, the relevant functions of the headquarters of the Holding Group will be integrated with the headquarters of the Real Estate Group.
Zhongliang Holding Group said that in terms of personnel policies, employees who have not clearly settled down will arrange formal departures on January 17, and the company will pay Severance Compensation N+1 (including performance wages) in accordance with the law, and probationary employees will pay severance compensation according to 0.5 months' wages. The Social Security Provident Fund will be paid until January 2022. In January 2022, the monthly benefit expenses of employees will be settled until January and consolidated into the payment of severance payments.
It is reported that Zhongliang Holding Group has a board committee, a board of directors, a political committee, an industrial economy, an administration department, a brand department, an outreach department and other departments. The departmental integration involved 148 people from the headquarters of the holding group, 164 people from the new infrastructure support group, and 33 people from other organizations, of which more than 80 people returned to the party on the basis of merit. Because the headquarters structure of the holding company is to be dissolved, almost all of these employees will be laid off one-size-fits-all.
Public data shows that during the peak period, There were more than 600 employees of Zhongliang Holding Group Platform Company, and after the adjustment and abolition in the second half of 2021, only more than 300 people were left before the "structural adjustment".
Zhongliang responded to the media that the company's initiative to streamline redundant personnel this time is part of a series of active adjustments in the second half of last year. "Layoffs" is in line with the general trend of the industry, and like other companies in the industry, "after this action is completed, this round of adjustment is also over."
For the dismantling and merger of Zhongliang, some insiders believe that "returning to the main business of real estate development is the trend of the times".
It is understood that as early as before the listing in 2019, Zhongliang Holding Group began to expand its innovative business, which is regarded as the founder Yang Jian's experimental field outside the real estate. However, in the past few years, due to the large number of organizational sectors, the adjustment of internal organizational structure is more normal, and there is not much business accumulation and performance results, and this reduction is also a foreseeable result.
According to media reports, before going public in Hong Kong, Zhongliang's amoeba model (innovative business) has become well-known in the industry. According to the report, in a nutshell, the Zhongliang Amoeba model is that high-net-worth investors invest in Zhongliang real estate projects through a real estate fund channel outside the Zhongliang table, and after the investors become equity investments, they are deeply tied to the project. Zhongliang has set up a set of "priority" mechanism for minority shareholders, and the project is strongly supervised by the customer, "no matter what happens in the outside world, the money for the project cannot be taken away at will."
In the past two years, the real estate market has not been good, and the profit dividends of Zhongliang Amoeba investors have decreased. To be precise, the de-industrialization of the project in the past two years has slowed down, and the minority shareholders who have entered the stage of recovering the principal in Zhongliang have been unable to get the principal as scheduled in 2021. "But these minority shareholders are not going to make trouble, and that's the difference between preferred stock and bonds."
The amoeba model has encountered a downturn in the market, and Yang Jian, who is good at organizational structure adjustment, can only start from the organizational structure, first do a good job in cost control, and then consolidate the main business of real estate, which can be described as a broken arm to survive.
Debt repayment
Up to now, compared with the double killing of shares and debts of some peers that have exploded due to unexpected events, Zhongliang has not yet defaulted in the open market.
On 17 January, Zhongliang Holdings Group announced that it had remitted all the necessary funds from its domestic bank account in China to its offshore bank account for repayment of the remaining principal amount and accrued interest upon maturity of the notes in January 2022 (i.e. 31 January 2022).
In short, Zhongliang prepared funds to remit in advance to an out-of-country bank account to repay the principal and interest due at the end of January. After this repayment, Liang has no maturity US dollar bonds to repay in the next 2 months.
It is worth mentioning that after the news of layoffs and the news of early debt repayment, the stock of Zhongliang Holdings has not fluctuated too much recently, with a share price of 3.720 Hong Kong dollars per share as of press time, with a total market value of 13.32 billion Hong Kong dollars.
In fact, since 2021, many detonating real estate companies have been triggered by the default of US dollar bonds. Zhongliang Holdings is not the first time to repay the DOLLAR debt in advance.
It is reported that On December 29, 2021, Zhongliang Holdings announced that the January 2022 notes with a total accumulated principal amount of US$68.81 million (accounting for about 27.52% of the initial principal amount of the initial issuance) have been cancelled. As at the time of this announcement, the outstanding principal amount of the Notes for January 2022 was US$181 million.
According to the disclosure, from January 11, 2022 to January 14, 2022, Zhongliang Holdings further repurchased the total principal amount of the January 2022 Notes to US$31.693 million, accounting for about 12.68% of the total principal amount of the initial issuance of the Notes in January 2022.
As of January 14, 2022, Zhongliang had repurchased (but not cancelled) a total accumulated principal of US$51.893 million, representing approximately 28.64% of the current outstanding January 2022 Notes, and Zhongliang Holding Group had repurchased a total accumulated principal of US$121 million, representing approximately 48.28% of the total initial principal amount of the Notes issued in January 2022.
Fitch, a well-known rating agency, estimates that Zhongliang Holdings has $1.2 billion of public capital market debt maturing through August 2022, including $97 million of senior notes due November 2021, $228 million due January 2022, $293 million due May 2022, $435 million due July 2022 and $150 million due August 2022.
Previously, Fitch maintained a B+ rating on Zhongliang Holdings, mainly due to its large scale and diversified operations. Fitch pointed out that Zhongliang Holdings has a diversified land bank focusing on the Yangtze River Delta, and the 2.8-year land bank provides a certain flexibility for Zhongliang to temporarily reduce land acquisition in the coming months without disrupting long-term business development.
On November 18, 2021, another well-known rating agency, S&P, adjusted the rating outlook of Zhongliang Holding Group from "stable" to "negative"; at the same time, S&P confirmed Zhongliang Holdings' "B+" long-term issuer credit rating.
The relevant person of Zhongliang Holdings told Red Weekly that the company is shifting from scale-oriented to profit-oriented, and will continue to reasonably lay out the return of US dollar bonds according to cash flow in the future.
According to the data disclosure, as of June 30, 2021, the total outstanding debt of Zhongliang Holdings was nearly 54.6 billion yuan, an increase of more than 500 million yuan compared with 54.092 billion yuan as of December 31, 2020. Among them, bank and other borrowings were about 43.839 billion yuan, a decrease from the end of 2020, and senior notes and asset-backed securities increased from the end of 2020, about 10.441 billion yuan and 319 million yuan respectively. (The latest data has not yet been disclosed)
In addition, in 2019, Zhongliang Holdings was interviewed by the regulatory authorities for "stepping on the middle" two red lines. As of June 30, 2021, the cash short-term debt ratio of Zhongliang Holdings has risen to about 1.2; the asset-liability ratio after excluding advance receipts is still as high as 79.3%, which is still a "yellow file" housing enterprise.
Turning
On January 4, 2022, Zhongliang Holdings announced the unaudited operating data for December 2021, and achieved contracted sales (including contract sales of joint ventures and associated companies) of about 171.8 billion yuan in 2021, an increase of 1.78% year-on-year; the cumulative contracted sales area was about 14.277 million square meters, an increase of 5.71% year-on-year.
At the results meeting in March 2021, Zhongliang's management said that the contract sales target for 2021 was set at 180 billion yuan. Based on this calculation, the performance target completion rate of Zhongliang in 2021 is 95.44%, which is higher than the industry average. However, from a single month's point of view, the actual contract sales completed in December were 16.3 billion yuan, a year-on-year decrease of 18.91%.
As a young 100 billion housing enterprise, in 2021, the annual sales of Zhongliang Holdings are comparable to those in 2020, with a slight increase, although the growth rate has dropped sharply, but it still ranks 20th in the full caliber of Kerry's "2021 China Real Estate Enterprise Sales TOP100 Ranking".
In recent years, the contract sales amount of Zhongliang Holdings has shown an overall growth trend, that is, from 19 billion yuan in 2016 to 171.8 billion yuan in 2021, with an average annual compound growth rate of 55.33%. However, the year-on-year growth rate of the company's contracted sales from 2017 to 2021 is in a state of slowing down year by year, 241.58%, 56.39%, 50.25%, 10.69% and 1.78% respectively.
According to statistics, from 2016 to 2020, including joint ventures and associated companies, the total contracted sales of Zhongliang Group were about 19 billion yuan, 64.9 billion yuan, 101.5 billion yuan, 152.5 billion yuan and 168.8 billion yuan respectively. Following a sharp slowdown in sales growth in 2020, in 2021, the growth rate was only 1.78%, and in December 2021, there was a sharp year-on-year decline.
Judging from the changes in growth rate, Zhongliang Holdings seems to have a turning point in terms of performance.
According to the data, in 1993, Huacheng Real Estate Development Co., Ltd., the predecessor of Zhongliang Holdings, was founded in Wenzhou. As a large-scale comprehensive real estate developer rooted in the Yangtze River Delta Economic Zone, with a nationwide layout and rapid development.
Since 2014, the company has been awarded the China Top 100 Real Estate Developers by the China Real Estate Top 10 Research Group for many consecutive years. In 2016, after Zhongliang Holdings moved its headquarters to Shanghai, it began to accelerate its global layout, and in just three years, Zhongliang Holdings successfully achieved contract sales of 101.5 billion yuan, helping the company successfully enter the camp of 100 billion real estate enterprises, and landed on the Hong Kong capital market on July 16, 2019.
However, after the rapid growth, Zhongliang Holdings, like many housing enterprises in the industry, has ushered in a bottleneck in development. In terms of profitability, the company's gross margin level is not high.
The data discloses that from 2016 to 2020, the company's gross profit margin was 21.1%, 20.4%, 22.9%, 23.3% and 21.0%, respectively, which was lower than the industry average. In the first half of 2021, the gross profit margin of Zhongliang Holdings further decreased to 20.8%, down 1.8% from the same period last year. Zhongliang Holdings explained that it was mainly due to the higher land acquisition cost of the property projects delivered during the period relative to the relevant average selling price.
Finally, in terms of soil storage, as of the first half of 2021, Zhongliang Holdings has a land reserve of 42 million square meters, which can support the development and use of 2.5 years. It is worth mentioning that in the whole year of 2021, Zhongliang Holding Group has accumulated a total of 85 plots of land, with a total purchase amount of about RMB52.6 billion and a value of about RMB116.4 billion, ranking about 20th.