Country Garden began debt restructuring, with the first domestic debt extended for three years, with an advance payment of 100,000 yuan per account

Country Garden's debt restructuring has entered the substantive stage.

On the evening of August 18, Interface News learned that the rollover plan for Country Garden's first domestic bond determined that the principal of the issued "16 Biyuan 05" would be extended for three years, with 100,000 yuan paid in advance for each account and interest repaid when due. The specific plan is: the principal of the bond is extended for three years, with a down payment of 6% (2% of the principal in the 1st, 2nd and 3rd months after maturity), and 10% of the principal in the 12th month; Pay 15% of the principal in the 24th month, 25% in the 30th month, and the remaining 44% in the 36th month.

Country Garden will hold an online meeting of creditors from August 23 to 25.

In order to increase the confidence of bond investors, Country Garden provided credit enhancement measures for this extended bond, increasing the equity pledge of project companies in Longyan, Fujian, Yantai, Shandong, Shuyang, Huai'an, Xinghua and other places in Jiangsu.

"16 Biyuan 05" is a private placement bond with an issuance scale of 5.83 billion yuan, the current bond balance is 3.904 billion yuan, the coupon rate is 5.65%, the maturity date is September 2, 2023, and the issuer is Country Garden Holdings Limited.

According to Interface News, Country Garden proposed a plan to extend this bond for 3 years after comprehensively considering the current real estate market environment and the company's operation, which is more rational and realistic.

Compared with the domestic debt extension plan approved by real estate enterprises before, part of the extension period is 1-1.5 years, but the current real estate market has not completely recovered, corporate sales and financing have not substantially improved in the short term, after the expiration of the extension period, there is no guarantee of payment on schedule, and the subsequent may fall into the situation of secondary extension or even three extension negotiations.

In terms of efficiency and communication costs, multiple rollovers are not conducive to the stable operation of real estate enterprises, capital planning, and investor confidence.

In the rollover plan, Country Garden will reimburse each account in advance by $100,000 without discrimination. In the previous rollover plan of housing enterprises, most of them did not add this kind of small payment. However, in order to protect small and medium-sized investors, Country Garden took the initiative to propose this plan, which can protect the rights and interests of some individual small investors in advance.

Compared with some other real estate enterprises that have completed the rollover of domestic bonds in the past two years, Country Garden's plan this time will ensure the normal payment of interest, and many cases in the past have deferred interest.

According to the proposed extension of the bond, Country Garden can repay the principal of the bond in advance. This means that if the market recovers better than expected and the cash flow position improves, Country Garden will prepay the bonds.

This will help improve the corporate debt structure, repair market credit, and restore the ability to refinance the public market.

Relevant analysis believes that the plan proposed by Country Garden is a plan that combines the expectation of market recovery and the company's solvency, which can avoid the risk of secondary rollover to a certain extent.

In order to increase investor confidence, Country Garden also provided a number of project equity guarantees for the extension of this bond. Although the project is located in Longyan, Fujian, Yantai, Shandong, Shuyang, Huai'an, Xinghua and other third- and fourth-tier cities in Jiangsu. But from a regional point of view, they are all located in the eastern coastal provinces and relatively good markets. At present, the above projects are all in normal sales, which can maintain a certain amount of cash flow collection, and the equity of the project is clear, and there is no complex debt relationship such as pledge and guarantee.

Country Garden insiders also told Interface News that these projects are all projects with positive residual value (that is, the value after deducting future development costs and repaying external existing debts), and are also selected by the company and the value is calculated by a third-party evaluation agency.

In order to protect the rights and interests of investors, as a credit enhancement asset project, there will be a third-party audit institution to supervise to ensure that the surplus funds of the project do not flow out of the asset package, as a specific supplement to the repayment of credit debts.

Relevant creditors told Interface News that for the plan proposed by Country Garden, although a small number of creditors still have doubts about the details of the plan, such as hoping to increase the down payment ratio. However, most bondholders are more likely to pass after considering the market environment, the capital situation of enterprises, and referring to the earlier rollover plans of other real estate companies.

If the domestic debt due on September 2 is rolled over, Country Garden can also win a respite, provide 2-3 years of space for the overall production and operation improvement and gradual release of funds, and finally fulfill its commitment to creditors and protect the rights and interests of creditors.

For Country Garden, the next more important task is to complete the handover of the building.

According to previous announcements, Country Garden's contract debt balance at the end of last year was still more than 660 billion, according to which it is estimated that Country Garden's undelivered listings at the beginning of the year were about 1.07 million sets, deducting the 278,000 units delivered in the first half of this year, plus this year's sales part, the undelivered listings so far are expected to be 800,000-900,000 sets.

Country Garden's total expected deliveries this year is nearly 700,000 homes, which is basically the same as in 2022. In the second half of this year, Country Garden will still have more than 400,000 units to hand over the house, and the remaining 4.5 million units will be completed in the next two years or so, most of which will be delivered next year.

This means that the second half of this year and next year will be a key period for Country Garden to implement guaranteed delivery, and in the context of the current real estate industry, it is also the primary responsibility of enterprises to do a good job in guaranteeing delivery.

Subsequently, with the gradual delivery of a large number of projects this year and next, there will also be a large number of regulatory funds gradually unfrozen and released, the misallocation of resources will be alleviated in the later stage, and a lot of funds can be returned for Country Garden, which is also beneficial to ensure the payment of subsequent bonds.

Interface News learned from Country Garden insiders that the current fund balance of the company's supervision account, coupled with the sales and recovery of the building, can basically ensure the completion of the future guarantee delivery task, but the project-level cash is basically closed management, and the funds need to prioritize the repayment of project-level financial liabilities after deducting the cost of engineering payments.

In the next two years, due to the need to ensure the handover of the building, most of Country Garden's funds will still be in the project supervision account, and the proportion of cash on the book that can be freely used is extremely low. However, with the gradual delivery of the project and the gradual release of funds in the custody account, the remaining funds available will flow up to the group to repay the open market debt at the group level.

At present, Country Garden Group's cash resources are still very tight, out of the importance of public bond redemption and concern for the interests of bond investors, the down payment conditions proposed are based on the company's own circumstances, and the interest is maintained normally, which also shows sincerity.

Unlike some insolvent housing enterprises, Country Garden's current assets are still sufficient to cover all interest-bearing debts, and as of the end of last year, it still has net assets of more than 300 billion yuan, and insufficient liquidity is only a stage problem.

Moreover, the phased liquidity problem faced by Country Garden is also relatively common in the current market situation, and it is not an isolated case.

With the arrival of the mid-reporting season, the performance of most real estate companies in the first half of this year is not optimistic. According to Wind data, as of August 4, 68 of the 116 A-share real estate companies classified by Wind have disclosed their first-half performance forecasts, of which 38 are expected to lose money, including some central state-owned enterprises.

Li Yujia, chief researcher of the Housing Policy Research Center of Guangdong Urban Planning Institute, said that Country Garden's current problems are mainly pessimistic expectations, asset liquidity and asset prices, and has not done irrational diversified operation and high capital operation.

Under the current situation that the sales recovery rate of the industry is not as fast as expected, the liquidity difficulties caused by the concentrated maturity of housing enterprise bonds in the short term are gradually increasing. From September this year to the end of this year, housing companies will face a peak of debt maturity, and whether they can successfully survive it requires the market and financing to improve as much as possible.

Since the end of July, the central government's tone on the property market has changed, the Politburo meeting and the National Assembly have focused on optimizing and adjusting real estate policies, a new round of property market policy easing period is coming, and among the core second-tier cities, Zhengzhou, Nanjing, Xiamen and Nanchang property market relaxation policies have been introduced one after another.

On the financing side, the central bank has recently cut interest rates more than expected, and the LPR in August is likely to be lowered again, and the long-term financing of enterprises and the cost of housing purchases for residents will also be reduced. And the central bank has also once again stated that it will promote the implementation of the special reloan and rental housing loan support plan for the rescue of housing enterprises.

At present, all localities have begun to continue to relax the property market policy, and the financial support will be implemented in the follow-up, which will have a positive impact on the recovery and recovery of real estate market transactions, and some real estate enterprises that still maintain normal operations can also benefit from the gradual recovery of the market.