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Shimao Group's "best management trainee" Lu Yi resigned, and the company's loan of about 181.9 billion yuan needs to be repaid within one year

Shimao Group's "best management trainee" Lu Yi resigned, and the company's loan of about 181.9 billion yuan needs to be repaid within one year

Shimao Group's Lu Yi resigned, and the company needed to repay about 181.9 billion yuan within one year, with heavy debts and frequent arrears to partners.

On December 7, Shimao Group Holdings Co., Ltd. (hereinafter referred to as Shimao Group, 0813. HK) announced a preliminary debt restructuring plan, which is expected to reduce debt by at least about US$6 billion. As of the first half of 2023, Shimao Group has unaudited offshore interest-bearing debt of about US$14 billion and domestic interest-bearing debt of about US$25 billion, and about RMB181.9 billion of borrowings due for repayment in the next 12 months. The resignation of Lu Yi, the "best management trainee", made Shimao Group lose a veteran.

Shimao Group's "best management trainee" Lu Yi resigned, and the company's loan of about 181.9 billion yuan needs to be repaid within one year

In terms of performance, since 2022, Shimao Group's revenue has plummeted, and the continuous shrinkage of the sales side has also made it difficult for Shimao Group to recover. In addition, its subsidiaries were sued by its partners for defaulting on loans, and Shimao Group was officially notified by the Fuzhou Urban-Rural Development Bureau for defaulting on project payments.

In response to the above situation, Discovery.com sent an interview letter to Shimao Group to request explanation, but as of press time, Shimao Group did not give a reasonable explanation.

The debt side is still under pressure, and Lu Yi resigned

According to public information, Shimao Group entered the real estate industry in 1989, and the current income of Shimao Group and its subsidiaries mainly includes property sales, commercial operations, hotel operations and property management business, of which the commercial operation is mainly developed through its holding subsidiary, Shanghai Shimao, and the property management business is handled by another holding subsidiary, Shimao Services.

In 2023, the financing scale of real estate companies will still be in a downward trend, and many real estate companies are still facing greater debt repayment pressure, and debt restructuring is also progressing unevenly.

On December 7, Shimao Group issued an announcement to disclose the progress of the preliminary restructuring of overseas debts. Shimao Group said that the company and its financial and legal advisers have been actively promoting the proposed restructuring of the group's offshore debt in the past few months, including the issuance of US dollar-denominated senior notes and certain unsecured offshore credit facilities (existing debt) with an aggregate principal amount of approximately US$11.7 billion, so as to reduce debt by approximately US$6 billion to US$7 billion, in order to optimize the company's financial strength and business operations.

Given the current market conditions, Shimao Group's overall liquidity remains constrained. As at 31 October, the Company's cash balances totalled approximately $22 billion.

Shimao Group's "best management trainee" Lu Yi resigned, and the company's loan of about 181.9 billion yuan needs to be repaid within one year
Shimao Group's "best management trainee" Lu Yi resigned, and the company's loan of about 181.9 billion yuan needs to be repaid within one year

(Source: Company announcement)

Although the debt restructuring initially reduced the debt pressure of Shimao Group by at least US$6 billion, the current debt scale of Shimao Group is still very large. As of June 30, 2023, Shimao Group's unaudited offshore interest-bearing debt was approximately US$14 billion and onshore interest-bearing debt was approximately US$25 billion.

At the same time, as of the first half of 2023, Shimao Group's borrowings totaled about 275.2 billion yuan, of which about 181.9 billion yuan will be due for repayment in the next 12 months. In addition, the company's loans that were not repaid on the planned repayment date totaled 119.7 billion yuan, and the balance of loans that were not repaid on the planned repayment date totaled 134.2 billion yuan.

In this case, the resignation of Lu Yi, the "best management trainee", made Shimao Group lose a veteran. On November 15, Shimao Group announced that Lu Yi resigned as a non-executive director due to personal career development reasons. Prior to this, in August, Lu Yi had resigned as executive president and executive director of Shimao Group.

According to relevant media reports, Lv Yi will start his own business after resigning from Shimao Group and establish Shenzhen Bright Construction Management Co., Ltd., the company's main business is agency construction consulting business.

Shimao Group's "best management trainee" Lu Yi resigned, and the company's loan of about 181.9 billion yuan needs to be repaid within one year

(Source: Company announcement)

It is reported that after graduating from Zhejiang University, Lu Yi joined Shimao Group as a management trainee in 2008, and then served as the chairman of Shimao Strait, the largest regional company under Shimao Group. In 2020, the annual sales of the Shimao Strait region exceeded 100 billion yuan, and Lu Yi became one of the contributors to the Shimao Group's revenue breakthrough again.

However, industry insiders also said that Lu Yi also has the problem of radical mergers and acquisitions, and a "century merger" three years ago has become a dark thunder for Shimao Group. In 2020, Shimao Group announced a cooperation with Fusheng Group, which includes about 100 billion yuan of saleable resources and nearly 400 billion yuan of old and renovated stock value. The merger and acquisition was led by Shimao Strait and planned by Lu Yi.

However, this big merger and acquisition not only failed to help Fusheng Group bail out, but instead caused Shimao Group to be dragged down by Fusheng Group's project and fall into a debt crisis. As of the first half of 2023, Shimao Group's asset-liability ratio after excluding advance receipts was about 85.8%, the net debt ratio was about 372.5%, and the cash-to-short-debt ratio was 0.03.

Property sales declined, and it was reported for arrears of project payments

At present, the huge debt pressure has exacerbated the financial risk of Shimao Group, and the company's performance has also been declining. Wind data shows that from 2020 to 2022 and the first half of 2023, Shimao Group's operating income will be 135.52 billion yuan, 107.932 billion yuan, 63.298 billion yuan, and 30.442 billion yuan respectively, and its net profit will be 12.628 billion yuan, -27.093 billion yuan, -21.492 billion yuan, and -12.058 billion yuan respectively.

Shimao Group's "best management trainee" Lu Yi resigned, and the company's loan of about 181.9 billion yuan needs to be repaid within one year

(Source: Wind)

The continuous shrinkage of the sales side has also made it difficult for Shimao Group to recover. In the first half of 2023, Shimao Group's property sales revenue during the period was RMB24.39 billion, accounting for 80.3% of total revenue, down 13.6% from the same period in 2022. In contrast, the overall recovery of the tourism market met market expectations, with the hotel segment growing by 43.5% year-on-year in the first half of the year.

In addition, the recent lawsuit filed by Huatong Company, a wholly-owned subsidiary of CCCC Real Estate, against Beijing Maokang, a subsidiary of Shimao Group, for defaulting on loans. In 2019, the two companies formed a consortium to jointly develop land plots, and later jointly invested in the establishment of CCCC Shimao, of which Huatong Company invested 225 million yuan and Beijing Maokang invested 275 million yuan.

During the project development process, CCCC Real Estate and Shimao Group have injected funds into CCCC Shimao on several occasions. In 2020, CCCC Shimao signed a Loan Contract with Beijing Maokang and provided a loan to Beijing Maokang, which stipulated that Beijing Maokang should repay the loan when it was due, or when CCCC Shimao issued a request for the return of funds to Beijing Maokang according to its business needs, Beijing Maokang should repay the loan.

Due to the capital needs of the project, CCCC Shimao sent the "Notification Letter of Fund Demand" to Beijing Maokang several times in accordance with the aforesaid agreement, requesting Beijing Maokang to return the loan according to the date and amount stated in the notice, but Beijing Maokang failed to fulfill its repayment obligations and owed CCCC Shimao a total of RMB 674 million in arrears of the principal of the loan to be repaid. In addition to repaying the principal of the loan, Huatong Company also requested that Beijing Maokang be ordered to bear the litigation costs and preservation fees of the case, and CCCC Shimao should bear the lawyer's fees paid by the plaintiff as a result of the lawsuit, totaling 700 million yuan.

Not only was the partner's loan in arrears, but Shimao Group also had the problem of delaying the payment of the project construction project. On November 1, the Fuzhou Municipal Bureau of Urban-Rural Development issued the "Notice on the Delay in Payment of Project Payments for Shimao Group's Related Projects (Rong Jianfang [2023] No. 350)", directly referring to Shimao Group's impact on the construction of the project.

According to the feedback from the construction unit, the project is controlled by Shimao Group. The Fuzhou Municipal Bureau of Urban-Rural Development notified Shimao Group of the notification to Shimao Group on the grounds that the payment limit was limited to the amount of payment under the condition that the funds in the supervision account were sufficient.

Shimao Group's "best management trainee" Lu Yi resigned, and the company's loan of about 181.9 billion yuan needs to be repaid within one year

(Source: official website of Fuzhou Urban and Rural Development Bureau)

Since 2022, Shimao Group has turned sharply, and now the company's revenue has been declining year by year, debts are accumulating more and more, and it has frequently defaulted on the accounts of partners.

(Reporter Luo Xuefeng, financial researcher Gao Ran)

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