Text – Kingfisher Capital
Recently, the real estate market has ushered in a series of favorable policies, including reducing the down payment ratio, reducing the interest rate of the existing first home loan, and recognizing the house without recognizing the loan.
Can the real estate industry, which is still being rescued in the ICU, be quickly revived because of this set of boosters?
Greenland Holdings (600606. SH) recently released its 2023 half-year report, has the company successfully traversed the minefield?
Performance continued to decline
In the first half of the year, Greenland Holdings achieved a total operating income of 174.2 billion yuan, a year-on-year decrease of 14. 91%； The total profit was 6.1 billion yuan, and the net profit attributable to listed shareholders was about 2.61 billion yuan, down 37.87% from the same period last year; Non-net profit was 1.932 billion yuan, down 55.85% from the same period last year; The weighted average return on equity was 2.95%, down 1.6 percentage points from the same period last year.
Compared with 2022, when the net profit of Greenland Group fell sharply by 83.65%, now the company seems to have temporarily stopped the decline in net profit and won a breather.
As of the end of the Reporting Period, Greenland Holdings' monetary funds and trading financial assets totaled RMB57.1 billion, and the asset-liability ratio and asset-liability ratio after deducting pre-receivables decreased by 1.87 percentage points and 2.46 percentage points. The balance of interest-bearing liabilities fell to 214.5 billion yuan, down another 3 billion yuan from the end of the previous year, and has fallen by 173.7 billion yuan since the introduction of the "three red lines" regulatory policy.
Compared with the same period last year, Greenland Holdings' total liabilities decreased by about 170 billion yuan to 1.03 trillion yuan.
Substantial defaults continue to occur after the rollover of US dollar bonds
Judging from the actual results of the pressure reduction debt, Greenfield seems to have passed the most difficult period, but it is still hovering on the edge of the thunderstorm.
In July 2023, Greenland Group issued an overseas bond "Greenland Group 5.875% 2026-07-03" (bond code 5769.HK) through cross-border guarantees. HK, ISIN code XS1081321595) defaulted on interest payments, with a default amount of US$18 million, which was also the first time that Greenland Group had a material default on bonds.
"Greenland Group 5.875% 2026-07-03" was listed and issued in July 2014 with an issuance scale of US$600 million, a current bond balance of US$599 million, and an issuance period of 10 years.
In 2022, Greenland Global Investment Limited conducted a rollover call for nine offshore bonds (with a total outstanding amount of US$3,242 million) issued by Greenland, of which 8 offshore bonds (including "Greenland Group 5.875% 2026-07-03") applied for a two-year extension in November 2022, 1 offshore bond applied for a one-year extension after maturing in June 2022, and again applied for a one-year extension in November 2022.
In terms of existing bonds, Greenland Group still has two corporate bonds "21 Greenland 01", "21 Greenland 02" and the first phase of asset-backed securities "Greenland Colorful 2021-1" in existence, with a total principal balance of 3.781 billion yuan (including asset-backed securities subordinated), of which "21 Greenland 01" and "21 Greenland 02" will face maturity in January 2024.
In terms of overseas debt, in addition to the defaulted "Greenland Group 5.875% 2026-07-03", Greenland Group has a total of 8 overseas bonds with a total principal balance of US$3.719 billion, which will mature successively between June 2024 and January 2027.
Overall, as of the end of June 2023, Greenland Holdings' interest-bearing liabilities totaled 214.5 billion yuan, the company's asset-liability ratio was 87.54%, down 1.87 percentage points from the beginning of the year, and short-term borrowings were 29.369 billion yuan, down 1.98% year-on-year.
In addition, Greenland Holdings' non-current liabilities due within one year were 67.763 billion yuan, down 15.41% year-on-year, monetary funds were 63.317 billion yuan in the same period, which could not be fully covered; long-term borrowings were 80.701 billion yuan, an increase of 18.23% over the same period last year.
Moody's expects Greenland Group to be less liquid
In response to Greenland's debt situation, Moody's said in its rating report released at the end of July that it downgraded Greenland Holdings Group's corporate family rating to "Ca" from "Caa2".
At the same time, Moody's downgraded the supported senior unsecured debt rating of Greenland Global Investment Co., Ltd., a subsidiary of Greenland Holding Group, to (P)C from (P)Caa3; Greenland Global Senior Unsecured Notes downgraded its rating on backed senior unsecured debt to C from Caa3.
Moreover, Greenland Hong Kong Holdings Limited downgraded its corporate family rating to Caa2 from B3; Greenland Hong Kong's MTI Program downgraded its rating on supported senior unsecured debt to (P)Caa3 from (P)Caa1; Greenland Hong Kong U.S. Dollar Notes downgraded its rating on backed senior unsecured debt to Caa3 from Caa1.
In addition, the rating outlook remains negative. "The downgrade to negative reflects the weak liquidity of Greenland Holdings Group and Moody's expects weak recovery prospects for Greenland Holdings Group's bondholders," Moody's analysts noted. ”
Moody's pointed out that Greenland Group will have a weak solvency in the next 3-6 months and its financial flexibility will be limited. Although Greenland Holdings extended the maturity of its offshore bonds by 1-2 years in November 2022, Greenland Holdings still faces significant debt repayment needs over the next 12-18 months, including about US$900 million of offshore bonds maturing by the end of 2024.
Moody's expects lower recoveries from its offshore bondholders in the event of bankruptcy, given Greenland Holdings' high debt leverage and substantial financing at the operating subsidiary level.
Previously, in November 2022, after Greenland Group completed the rollover of all US dollar senior bonds, S&P Global Ratings downgraded the long-term debt rating of the senior unsecured bonds guaranteed by Greenland Holdings Group Limited from "C" to "D" (default). The Company's long-term entity credit rating remains "SD" (Selective Default).
S&P believes that without the rollover, Greenland Group may lack the necessary resources to fully repay the bond maturity date, and even if the debt is rolled over, Greenland Group will still face pressure to repay RMB7.7 billion of onshore bonds by the end of 2023.
Five major problems of trillion debt ceiling
Overall, Greenland Group still faces five major problems in the battle to reduce debt.
The first must be a high debt ratio. Although efforts have been made to reduce debt, but the company's current debt is still over one trillion, the asset-liability ratio is still as high as 87.54%, not only short-term solvency has been affected to a certain extent, long-term debt has also increased long-term debt repayment pressure, as of June 30, long-term borrowings of 80.701 billion yuan, up 18.23% from the same period last year.
Second, the capital chain is tight. Although Greenland Group completed a cumulative sales amount of 63.3 billion yuan in the first half of 2023 and collected 57.1 billion yuan, due to a large amount of investment in the past few years, the problem of tight capital chain has not been effectively alleviated.
And because the financing policy has been tightened, it is difficult for Greenland to obtain a large amount of financial support from the outside, from bank loans to trusts, private placements, and then overseas financing are strictly regulated by regulators.
It is worth noting that as the largest real estate enterprise in Shanghai, Greenland Group has become a major taxpayer.
According to an announcement issued by the Shanghai Changning District Taxation Bureau, Greenland Holding Group Co., Ltd. added two new tax arrears announcements, of which the total amount of value-added tax owed was about 10.2196 million yuan, and the urban maintenance and construction tax was about 715,300 yuan.
In addition to tax arrears, Greenland Group also has a number of subsidiaries that have been included in the list of untrustworthy enforcers, mainly because of problems such as disputes over project payments and arrears of project payments by many project companies in the real estate development sector.
Third, the debt interest is higher, which increases the company's financial costs. For example, the bond "21 Greenland 01" has a total issuance of 1 billion yuan, a maturity of 3 years, and a coupon rate of 7.00%.
Fourth, the debt structure is unreasonable, and the ratio of short-term debt and long-term debt is unbalanced, resulting in insufficient short-term debt repayment ability.
Fifth, various operational risks are high, and Greenland Group's business involves many fields, and there are certain operational risks, which may affect the company's solvency.
From the revenue disclosed in the 2023 half-year report, Greenland Holdings' current revenue composition is composed of real estate, construction and commodity sales and other formats, and these distributed income have declined in the middle of this year, of which the construction business has decreased by 25.77% compared with the same period last year.
As early as the end of 2021, Greenland Holdings announced that its industry category was changed from "real estate" to "civil engineering and construction", and the reason was that the proportion of infrastructure business revenue had exceeded half.
Greenland Holdings officially explained that the recovery of real estate and infrastructure industries during the reporting period was less than expected, with a total revenue of 72.2 billion yuan in the real estate industry and a total operating income of 80.9 billion yuan in the infrastructure industry, "Affected by the continuous downturn in the market, the return of promotional funds and other factors, the gross profit margin of the real estate business decreased year-on-year, and the infrastructure business also declined to a certain extent compared with the same period last year, but maintained a large volume." ”
※This article is an original article of Kingfisher Capital, please do not reprint it without authorization.