Per reporter: Bao Jingjing Per editor: Wei Wenyi
A few days ago, Jingrui Holdings (01862, HK; closing price of HK$1.69 yesterday) announced that the exchange offer for the outstanding 12.75% senior notes due in March 2022 expired at 4:00 p.m. (London time) on March 4, 2022. As of the expiry of the Extended Exchange Period, the Existing Notes of US$175.33 million (representing approximately 92.28% of the total principal amount of the Outstanding Existing Notes) have been validly submitted for exchange and accepted pursuant to the Exchange Offer.
According to the announcement, after the conditions of the exchange offer are met or waived, Jingrui Holdings will issue NEW notes of US$171.11135 million on March 9, 2022, with interest of 12.75% per annum, paid semi-annually, due on September 9, 2023.
A week ago, on March 2, Jingrui Holdings also announced the results of the solicitation of five outstanding senior notes exchange offers, saying that it had obtained the necessary consent to implement the proposed amendments to the contracts.
Since the second half of 2021, "exchange offers" have become a common choice for many housing companies facing the maturity of DOLLAR bonds to avoid default. In this regard, Zhang Lei, a postdoctoral researcher at Peking University, said in an interview with the "Daily Economic News" reporter, "Through the exchange of offers, although enterprises can quickly resolve the debt crisis caused by liquidity runs and successfully avoid large-scale debt defaults, with the arrival of the peak of debt repayment of many housing enterprises, the industry as a whole is still facing greater pressure." ”
Last year's sales performance did not meet expectations
The reporter combed the announcement of Jingrui Holdings and found that as of June 30, 2021, its cash short-term debt ratio was 1.67, the asset-liability ratio (excluding advance receipts) was 67%, the net debt ratio was 74%, and the "three red lines" all met the regulatory requirements and belonged to the ranks of "green file" housing enterprises.
In the first half of 2021, the contracted sales of Jingrui Holdings were 18.735 billion yuan, an increase of about 144.3% over the same period in 2020. The total contracted gross floor area of sales was about 969,300 square meters, mainly from the Jiangsu region and municipalities directly under the Central Government, which were about 7.314 billion yuan and 5.62 billion yuan (excluding parking spaces), accounting for 39.0% and 30.0% respectively. At the same time, the land reserve during the reporting period was about 5.2925 million square meters, and the cash on the account reached 14.23 billion yuan.
However, after the market turned cold in the second half of 2021, the performance of Jingrui Holdings began to change. According to the unaudited operating data of December 2021, as of December 31, 2021, the cumulative contracted sales of Jingrui Holdings were about 27.011 billion yuan, the contract sales area was about 1433005 square meters, and the average contract sales price was about 18849 yuan / square meter.
This average price fell by 14.5% year-on-year compared with the average contract sales price of 22,033 yuan / square meter at the end of 2020. Slower sales growth and lower average sales prices mean further reductions in profit margins.
On February 21 this year, Jingrui Holdings issued a profit warning saying that the annual net profit as of December 31, 2020 was about 1.238 billion yuan, down about 60% to 70% year-on-year.
Zhang Lei analyzed, "Jingrui Holdings began its strategic transformation from 5 years ago, and its business extended to apartments, offices, investment funds, etc., but the apartment and office business was not profitable, and although property services can bring certain cash flow, the pressure of the main business industry will still drag down the company's performance." ”
Regarding the expected decline in net profit, Jingrui Holdings said in the announcement that it was mainly due to the delay in project delivery due to the impact of the market and the new crown epidemic, which made the carry-over income and gross profit less than expected; as well as the decline in the demand for commercial real estate leasing due to the external macro market environment, resulting in a decline in the fair value of investment properties of joint ventures; and the decline in the exchange income of the Group's debt denominated in currencies other than RMB in the current year, which was relatively lower than that of the previous year, resulting in a decline in the exchange income recorded by the Group in debt denominated in currencies other than RMB.
Entering 2022, Jingrui Holdings is still facing a more severe market environment. According to the announcement, from January to February 2022, the cumulative contracted sales of Jingrui Holdings (including the sales of joint ventures and associated enterprises) was about 1.215 billion yuan, a year-on-year decrease of about 68.67%.
Can an exchange offer get a business out of trouble?
According to the announcement of the exchange offer, after the terms of the exchange offer have been met or waived, Jingrui Holdings will issue approximately US$171 million of new notes on March 9, 2022, with interest calculated at an annual interest rate of 12.75%, to be paid semi-annually.
Judging from the bond issuance of housing enterprises in recent months, the interest rate of 12.75% is rare. Since the beginning of this year, the scale of foreign debt issuance by housing enterprises has been repeatedly reduced, domestic financing supervision has become stricter, and the funds of private housing enterprises have been further pressured.
It is worth mentioning that a few days ago, on March 2, Jingrui Holdings also issued an announcement on the results of the solicitation of five outstanding senior notes exchange offers, saying that it had obtained the necessary consent to implement the proposed amendments to each contract. As necessary consent has been obtained, the Company and its subsidiaries intend to enter into a supplementary contract with the relevant trustees in respect of each contract as soon as practicable to implement the proposed amendments, and it is currently expected that any expiring consent fee will be paid on 9 March 2022.
The notes outstanding include 12.0% senior notes due July 2022, 12.0% senior notes due September 2022, 14.5% senior notes due February 2023, 12.5% senior notes due October 2023 and 12.0% senior notes due January 2024. As of now, the total balance of these five US dollar bonds is 1.115 billion US dollars, of which the highest annual interest rate is 14.5%.
In this regard, Zhang Lei said, "Jingrui Holdings issued high-interest notes is no longer news, as early as 2019 issued a DOLLAR bond interest rate of 14.5%, has exceeded the interest rate level of this bill." The high cost of financing and the excessive pressure on financial costs will inevitably affect the sustainable development of enterprises. ”
It is worth noting that in addition to Jingrui Holdings, a number of housing enterprises have recently continued to actively communicate with creditors to promote the exchange offer of mature notes. "For companies with internal governance issues and serious debt risks, the exchange offer may be a temporary measure, and the risk of default after the exchange will remain until there is no practical improvement in operating performance." Zhang Lei said.
According to the analysis of the Middle Finger Research Institute, overseas rating agencies have once again downgraded or looked forward to a number of housing enterprises, indicating that overseas investors still hold a relatively negative attitude towards the current liquidity and solvency of housing enterprises. In this case, the housing enterprise facing the risk of default should actively communicate with the creditors in a timely manner, in exchange for the support of the creditors in exchange for a positive response, and the two sides jointly seek a way to bail out, which not only reduces the unnecessary losses caused by information asymmetry, but also improves the efficiency of debt resolution.
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