Since the beginning of this year, cases of trust companies taking over the equity of real estate companies' projects have occurred from time to time. On March 3, a reporter from Beijing Business Daily combed and found that as of now, a number of trust companies, including Zhongrong Trust, Minmetals Trust, and Everbright Trust, have entered the market to take over the equity of real estate company projects. In the view of analysts, in the current complex economic and financial environment, the trust company's shareholding in the real estate company project has certain reference significance for the trust company to dispose of the real estate trust stock business and resolve the business risk, but it should be noted that the current real estate industry risks have not been fully cleared, the sales market has not yet recovered, and there is also an uncertain market risk of rushing to take over.
Take over the equity of the real estate company's project
The pace of trust companies taking over the equity of real estate companies' projects has been accelerating. Recently, China Evergrande issued an announcement to sell the equity of the four real estate companies under its name to Everbright Trust and Minmetals Trust respectively, and the above two trust companies invested funds to ensure the subsequent development and construction of the project.
From the perspective of specific projects, Everbright Trust took over 10% of the equity and 279 million yuan of debt of Chongqing Daichen Real Estate Development Co., Ltd. and 9.8712% of the equity and 500 million yuan of debt of Dongguan Hongjun Real Estate Development Co., Ltd. (hereinafter referred to as "Dongguan Hongjun"), with a total consideration of 1.03 billion yuan. Minmetals Trust took over 9.23% equity and 240 million yuan of debt of Yingqin Real Estate Development Co., Ltd. of Shunde District, Foshan City, and 10.97% of the equity and 640 million yuan of debt of Nansha Hengrui and Nansha Hengchang respectively, with a total consideration of 1.1 billion yuan. By selling the relevant equity interests in four real estate projects to Everbright Trust and Minmetals Trust, China Evergrande recovered a total of 1.95 billion yuan of upfront investment funds and resolved about 7.01 billion yuan of debt involved in the project.
Coincidentally, cases of trust companies taking over the equity of real estate companies in projects have also occurred from time to time this year. In addition to Everbright Trust and Minmetals Trust, not long ago, Zhongrong Trust also took over 70% of the equity of Liuzhou Longguang Junde Real Estate Development Co., Ltd. transferred by Nanning Longguang Real Estate Development Co., Ltd.
In the view of Liao Hekai, an analyst at Jinle Function, a trust company can gently resolve existing business problems by taking over the equity of real estate company projects, while minimizing the losses of the principal. Proper handling can achieve a win-win situation for the settlor, the trust company and the developer.
It is worth mentioning that most of the trust companies that take over the equity of the real estate company's project hold the equity of the project itself from the early stage. Taking the equity of Dongguan Hongjun Project taken over by Everbright Trust as an example, Tianyancha App shows that before the equity change, Guangzhou Hengyixiang Trading Co., Ltd., a subsidiary of Everbright Trust, held 90.13% of the equity of Dongguan Hongjun. Today, after the equity transfer, China Evergrande withdrew, and Dongguan Hongjun was indirectly wholly owned by Everbright Trust.
Resolve stock risks
Real estate business has always been one of the mainstream businesses of the trust industry, the stock scale is huge, but with the excessive growth of the initial business, not only to the property market regulation and control to bring a certain hedging impact, but also to the safety of their own business buried risks and hidden dangers, since 2019, real estate trusts have blown a "retreat wind", at that time, trust companies "cut off" the equity of real estate companies held in their hands has become the norm.
In the case of the overall tightening of the industry, why are there still trust companies entering the market to take over the equity of real estate companies? In Liao Hekai's view, it is precisely because the supervision has been tightened several years ago, most of the existing real estate trust business is of good quality, and the normal exit of the project to solve the liquidity completion can safeguard the interests of the settlor and the reputation of the trust company. After taking over the equity of the real estate company's project, the trust company will generally only control it financially, continue to promote the normal progress of the project until the project is normally withdrawn, and then find qualified partners to jointly take over the project operation and promote the normal exit of the project.
It can also be seen from public information that China Evergrande sold the equity of the four real estate companies of Everbright Trust and Minmetals Trust, although the trust institution took over the operation and invested funds in the project company to ensure the subsequent development and construction of the project and the guarantee of the handover of the building. However, the trust institution does not actually participate in the distribution of project profits as a shareholder. At the same time, China Evergrande will retain the right to financial supervision of the project and the right to joint pricing of sales. When the relevant projects realize the benefits and repay the investment of the trust institution, China Evergrande can also exercise the repurchase right, requiring the trust institution to transfer 100% of the interests in the relevant project to it at zero consideration, and if China Evergrande does not repurchase, the trust institution will continue to manage and enjoy an annual distribution profit of 5%.
Under such circumstances, will the actual control of the trust company transfer after taking over the equity of the real estate company project? Liao Hekai told the Beijing Business Daily reporter that from the perspective of these projects of China Evergrande, the actual control has not been transferred, and the trust company just needs to exit smoothly, which can be understood as a strengthened version of financial investors.
However, the trust company's takeover of the equity of the real estate company's project is not beneficial and harmless. Shuai Guorang, a researcher at Utility Trust, said that in the current complex economic and financial environment, trust companies take shares in real estate companies to take over the equity of real estate companies, which is the most ideal way to dispose of them, and can take the initiative in project disposal, which has certain reference significance for trust companies to dispose of real estate trust stock business and resolve business risks. But there are also uncertain market risks, after all, the current real estate industry risks have not been fully cleared, and the sales market has not yet recovered.
"The pricing issues and exit issues in the process of the trust company taking over the equity acquisition process of the real estate company project are more sensitive. Especially when the real estate market is still unclear. Liao Hekai further analyzed and pointed out that the industry's leading enterprises are still "wintering", after fully considering the amount of financing and potential costs, how to take over the equity of the project company in the future is a big challenge.
Professional and systematic
Some analysts believe that the trust company's full takeover of the equity of real estate projects is the fastest way to return funds, which also stems from the support of regulatory policies.
At the end of December 2021, the Central Bank of China and the Banking and Insurance Regulatory Commission jointly issued the Notice on Doing a Good Job in M&A Financial Services for Risk Disposal Projects of Key Real Estate Enterprises, encouraging financial institutions to provide financial services for mergers and acquisitions, helping to resolve risks and promote the liquidation of the industry. Under the call of the policy, what other ways can trust companies explore in the real estate field?
Liao Hekai believes that trust companies can start to develop real estate trust business in the fields of real estate standardized bonds, real estate acquisition funds, real estate investment trusts (REITs) and other fields, which is also in line with the development stage and development trend, which is still in the relatively early stage, and the real estate industry may be the starting opportunity at the moment of maturity.
"The follow-up real estate equity investment will move in a more professional and systematic direction, and in this process, professional real estate investment trust companies will evolve." Liao Hekai further analyzed that with the re-integration of real estate resources, the industry has also entered a relatively gentle period of development, and the gradual rise of the real estate standardized bond business is an inevitable choice. During this period, a large number of M&A demand will inevitably emerge, and the scale of M&A bonds will reach an unprecedented level, and related businesses cannot be underestimated. In addition, domestic real estate reitts cannot be carried out on a large scale in the short term due to the impact of real estate financing policy return taxation, but with the follow-up of policies and the deepening of market maturity, because there is a huge market base, the potential scale of the domestic REITs market is huge.
Beijing Business Daily reporter Meng Fanxia and Li Haiyan