China SCE Group's debt default revenue fell by nearly 40% in the first half of the year, and it was temporarily suspended to take the underground sinking layout of the third and fourth lines to remove the pressure

Yangtze River Business Daily News ● Changjiang Business Daily reporter Jiang Chuya

As an excellent student of a private developer of the Min family, China SCE Group also had a substantial breach of contract after struggling for half a year.

On October 4, China SCE Group Holdings Co., Ltd. ("China SCE Group", 01966.HK) announced that the principal and interest of a US dollar loan of the company could not be paid on time, totaling about US$61 million.

The overdue US dollar loan caused China SCE Group to default on its overseas US dollar bonds, and it has suspended the trading of the company's overseas US dollar senior notes from 9 am on October 5 until further notice. As of June 2023, the company's cash and bank deposits were approximately RMB12.445 billion, and the total interest-bearing debt was approximately RMB37.935 billion.

According to the announcement, in the second quarter of 2023, China SCE Group's sales continued to decline, liquidity tightness became increasingly severe, and the pressure of overseas debt payment continued to increase.

Due to the tight liquidity situation in recent years, China SCE Group has significantly slowed down the pace of land acquisition, and there are basically no new land reserves in 2022. According to the monitoring of the China Index Research Institute, China SCE Group did not acquire land in the open market in the first half of 2023.

The company's operating results were also affected. In the first half of 2023, China SCE Group achieved a contract sales amount of about 20.084 billion yuan, a year-on-year decrease of 38.4%, an operating income of 9.482 billion yuan, a year-on-year decrease of 38.4%, and a net profit loss attributable to the parent of 123 million yuan. Moreover, its soil reserves are located in third- and fourth-tier cities, and a large proportion is facing certain pressure to dematerialize.

Official declaration of debt default, debt repayment is under pressure

The reporter of Changjiang Business Daily noted that before officially announcing the default, China SCE Group had used almost all kinds of measures available to avoid default, including extending the maturity of debt, accelerating property sales, adding new financing channels, promoting asset disposal and strictly controlling expenses.

On April 14, China SCE Group announced that it had remitted funds to the trustee five days in advance of the 7.25% senior notes with a principal amount of US$500 million. At that time, China SCE said that after successfully repaying this US dollar debt, there would be no US dollar debt within the year. This means that it has crossed the cycle and landed safely.

In January and August, China SCE Group received the first and second tranches of China SCE Group with a total of RMB2.2 billion in the first and second tranches fully guaranteed by China Bond Credit Promotion Investment Co., Ltd. ("China Debt Increase"). In addition, China SCE Group also received an overseas syndicated loan of HK$255 million and US$89.1 million in July.

However, half a year later, China SCE Group still could not escape the debt default. On October 4, China SCE Group issued an announcement that the company did not pay the principal and interest due totaling approximately US$61 million under the syndicated loan agreement signed on March 22, 2021, and that the unpaid loan had led to a default event on the company's offshore US dollar senior notes.

According to the announcement, in the second quarter of 2023, China SCE Group's sales continued to decline, liquidity tightness became increasingly severe, and the pressure of overseas debt payment continued to increase.

Since 2023, except for the sales of more than 4 billion yuan in March, the sales of China SCE Group in other months are about 3 billion yuan, and from May to August, China SCE's sales continued to decline.

In the first half of the year, China SCE Group's sales fell by 38.4% year-on-year, and its overall revenue fell to 9.482 billion yuan. In the first half of 2023, the delivered area of China SCE Group decreased significantly by 38.2% to 933,100 square meters from 1,509,700 square meters in the first half of 2022, resulting in a decrease in property sales revenue of 39.4% to 8.61 billion yuan.

In the first 8 months, the company achieved a cumulative contract sales of 23.587 billion yuan, a year-on-year decrease of 42.68%; The cumulative sales area was 1,887,900 square meters, a year-on-year decrease of 42.14%.

On September 14, Moody's downgraded China SCE Group's Corporate Family Rating (CFR) to "Caa1" from "B3" and senior unsecured rating to "Caa2" from "Caa1", after falling sales of China SCE Group, with the outlook remaining negative.

According to public statistics, China SCE will face three US dollar bond coupons in September, October and November, with a total amount of US$49.5 million, and the payment pressure has increased sharply. In the next year, China SCE Group will have a total of approximately US$950 million, or approximately RMB6.934 billion, and approximately RMB7.4 billion including interest.

As of June 2023, China SCE Group has total assets of about 190.353 billion yuan, total liabilities of 158.563 billion yuan, and total interest-bearing debts of about 37.935 billion yuan.

As of the end of the first half of the year, its cash and equivalents were RMB8.73 billion, restricted cash was RMB3.714 billion, bank borrowings due within one year were RMB8.373 billion, and senior notes and onshore bonds were RMB4.124 billion. Cash on hand can no longer cover short-term debt.

Suspended land acquisition revenue fell by nearly 40%.

Since 2022, the performance of China SCE Group has shown a clear downward trend. In 2022, the company achieved revenue of 26.7 billion yuan, a year-on-year decrease of 29.2%; The net profit attributable to the parent was 24.54 million yuan, a year-on-year decrease of 99.20%.

In the first half of 2023, China SCE Group achieved operating income of 9.482 billion yuan, down 38.4% year-on-year, and a net profit loss attributable to the parent core of 123 million yuan.

In terms of soil storage layout, in the past few years, the company has sunk into third- and fourth-tier cities. According to the financial report data, the contracted sales of China SCE Group in the first half of 2023 will be about 20.084 billion yuan, of which the sales in third- and fourth-tier cities will be about 5.029 billion yuan, accounting for about 25%, while the company's land storage cost in third- and fourth-tier cities will account for 34.3%.

In fact, in view of the tight liquidity situation in recent years, China SCE Group has significantly slowed down the pace of land acquisition, reducing the ratio of land acquisition area to sales area to 33% in 2021, and basically no new land reserves in 2022.

According to the monitoring of the China Index Research Institute, China SCE Group did not acquire land in the open market in the first half of 2023. As of the end of June 2023, China SCE Group had a total planned construction area of 31.64 million square meters of land reserves, down 6.6% from the end of 2022, and the total planned construction area of equity land reserves was 25.4 million square meters. Although the soil reserves show a continuous downward trend, the overall scale is still abundant, which can support the development needs of China SCE Group in the next two to three years.

As the real estate industry enters a period of adjustment, the company's development focus has been tilted towards guaranteed delivery. At the semi-annual work conference held earlier, China SCE once again reiterated the focus of "ensuring delivery". Data shows that in 2022, China SCE delivered nearly 50,000 residential units throughout the year. At the same time, in the first September of 2023, China SCE has presented nearly 27,000 real housing listings nationwide, and it is expected that nearly 50,000 real housing units will be presented within this year.

In addition, China SCE has proposed a one-in-one two-wing strategy since 2017, and its shopping malls and long-term rental apartments are also gradually cashing in. Taking shopping malls as an example, nearly 40 shopping malls have been contracted and 12 have opened.