Image source@Shimao Group announcement
On April 8, Shimao Group announced that China Construction Bank (Asia) Corporation Limited filed a winding-up petition against the Company with the High Court of the Hong Kong Special Administrative Region on April 5, 2024, involving financial obligations of the Company amounting to approximately HK$1,579.5 million.
Affected by the winding-up petition, the share price of Shimao Group fell sharply on April 8, falling by more than 12% in early trading, and by the end of the day, the share price of Shimao Group fell by 18.68%.
In response to the winding-up petition, Shimao Group has the same attitude as most of the real estate companies that have been wound up by creditors, such as Country Garden, and said in the announcement, "The petition does not represent the common interests of the Company's overseas creditors and other relevant parties." The Company will vigorously oppose the Petition and proceed with the offshore debt restructuring to maximize the value of its related parties. ”
In fact, in early March, there was market news that Deutsche Bank was preparing to file a winding-up lawsuit against Shimao Group in Hong Kong, and there is no further progress at present.
The debt restructuring plan has been released, and no agreement has been reached with the relevant creditors for the time being
On March 25, Shimao Group disclosed inside information about the "proposed offshore debt restructuring clause". However, according to capital market sources, Shimao Group's key creditor group considered opposing the company's proposed offshore debt restructuring plan. It is reported that the winding-up petition of Shimao Group may be related to the temporary failure of relevant creditors to reach an agreement on some issues of debt restructuring.
In 2021, Shimao fell into a liquidity crisis. In July 2022, Shimao Group formally defaulted on its failure to repay the principal and interest of US$1 billion of offshore debt as scheduled. Subsequently, the U.S. dollar-denominated senior notes, including an aggregate principal amount of approximately US$11.7 billion, and certain unsecured offshore credit facilities were also deemed to be in default.
In December 2023, after 18 months of creditor negotiations, Shimao Group launched a preliminary offshore debt restructuring plan, which mainly includes the issuance of new debt instruments, debt-to-equity swaps, and payment of consent fees to creditors, with a plan to reduce liabilities by about US$6 billion to US$7 billion.
On March 25, Shimao Group disclosed in detail the terms of its offshore debt restructuring. The restructuring involved the debts of Shimao Group, Shimao Property Holdings (BVI) Limited (the property company) and Shimao Investment Holdings Limited.
The restructuring plan as a whole includes the old for the new, debt-to-equity swap and other means. It is reported that Shimao Group provides creditors with four options: short-term instruments, long-term instruments, mandatory convertible bonds, and a combination of different instruments, including converting debt into 6-year short-term instruments, 9-year long-term instruments, 1-year mandatory convertible bonds, and a hybrid combination of these three instruments.
Specifically, the first option is a 6-year short-term instrument, in which the creditor may choose to obtain a short-term instrument in the form of a short-term note or a short-term loan with a principal amount equal to 100% of the principal amount of the scheme creditor's claim. The short-term notes and short-term loans will be issued by Shimao Group with a tenor of six years and an aggregate principal amount of up to US$3 billion. Interest will be accrued and paid semi-annually on an aggregate basis of 50% of the outstanding principal amount of the Short-Term Notes or Short-Term Loans, payable in cash or in kind at the Company's option for the first four years from the effective date of the restructuring, and in full in cash from the fifth year onwards. Interest rate is 5% per annum if the interest is paid in cash in full and 6% per annum if any part of the interest is paid in kind.
The second option is a 9-year long-term instrument, in which the long-term notes and long-term loans selected by creditors will also be issued by Shimao Group with a tenor of 9 years and an aggregate principal amount of no more than US$4 billion. Interest on the outstanding principal amount of the long-term instrument will be accrued and payable semi-annually at 3% per annum for the first six years from the effective date of the restructuring, fully in kind, and 2% annually in cash starting from the seventh year.
The third option is the Mandatory Convertible Bonds, which convert all or part of their holdings into shares of the Company at a conversion price of HK$8.5 per share.
The fourth option is a combination of different instruments with a fixed combination of different instruments with a total principal amount equal to 100% of the principal amount of the creditors of the scheme. The fixed portfolio consists of a short-term instrument with a principal amount equal to 25% of the principal amount of creditors of the scheme, a long-term instrument with a principal amount equal to 35% of the principal amount and a mandatory convertible bond with a principal amount of 40%.
In addition, Shimao Group also disclosed the conversion of shareholder loans in the restructuring plan. On the one hand, Hui Rongmao, through his wholly-owned company, provided loans with an aggregate principal amount of HK$3,963 million to Shimao Group and a loan with an aggregate principal amount of HK$3,839 million to subsidiaries of Shimao Group. On the other hand, Xu Rongmao will exchange the outstanding shareholders' loan of US$600 million for new long-term notes with a principal amount of US$600 million, and the total principal amount of the outstanding shareholders' loan minus US$600 million will be exchanged for a mandatory convertible bond of the principal amount.
In an announcement on April 8, Shimao Group said: "The company has been in good faith restructuring discussions with its overseas creditors, and promises to continue to actively communicate with its overseas creditors on its overseas restructuring matters." The Company encourages all overseas creditors to carefully consider the restructuring plan announced by the Company on March 25 and support the implementation of the restructuring. ”
People in the industry believe that in the process of corporatization of debts, the company's major shareholders are willing to invest in the relevant loan amount, which shows the sincerity of the company's debt restructuring; in addition, the richer debt disposal methods are conducive to meeting the diversified needs of creditors and increasing the opportunities for debt restructuring.
Selling high-quality assets, the loss will be 14.5 billion yuan in 2023
Similar to the self-rescue actions of other insuring real estate companies, in addition to actively carrying out debt restructuring, Shimao Group is also selling high-quality assets, increasing sales, and recovering funds, but its road to self-rescue is not smooth.
According to public information, from the second half of 2021 to 2023, Shimao disposed of nearly 20 assets, including the equity of the Victoria Harbour Project in Hong Kong, the land plot at No. 229 Huangpu Road, the land plot of Beijing Minute Temple, the equity of Guangzhou Asian Games City, and the Hyatt Shanghai Bund Hotel. In October 2023, Xu Rongmao, the actual controller of Shimao shares, once again attracted market attention by introducing a portfolio of cattle farms in Western Australia to the market. In 2024, Shimao is still selling a number of assets at a discount, including the transfer of the "tallest building in Pingshan, Shenzhen" at a low price of 246 million, the sale of Taiwanese Powerlong Plaza in Quanzhou at a 2% discount, and even the public auction of the core asset Shenzhen Shimao Shenzhen-Hong Kong International Center at a price of 2.6 billion yuan, but it has not been successfully sold yet.
According to the latest financial report data of Shimao Group, in 2023, the company's contracted sales in 2023 will be 42.822 billion yuan, the contracted sales area will be 2.947 million square meters, the total operating income will be 59.464 billion yuan, a year-on-year decrease of 5.7%, the loss attributable to equity holders will be about 21.03 billion yuan, and the core business loss attributable to shareholders will be about 14.508 billion yuan. For the whole of last year, the company's overall gross profit margin was only 9.8%.
As of the end of 2023, Shimao Group's total assets were 543.25 billion yuan, total liabilities were 491.999 billion yuan, the asset-liability ratio after excluding advance receipts was about 88.7%, the net debt ratio was about 473.2%, and the cash-to-short-debt ratio was 0.04. The total repayment amount of bank loans, loans from other financial institutions and bonds owned by the company is about 263.96 billion yuan, of which 151.39 billion yuan is less than one year.
It is worth mentioning that the auditor's audit of the results announcement disclosed that "it is unable to express an opinion on the financial statements and may not be able to realize assets and repay liabilities in the ordinary course of business." ”
2024 may usher in the "liquidation wave" of real estate companies
It is understood that CCB (Asia), the applicant for Shimao's liquidation, has so far petitioned for the liquidation of four real estate companies. These include petitioning DXN China for liquidation in the Hong Kong Court in March, Dafa Properties for liquidation in February, and Zhongliang Holdings for liquidation in 2023. At present, Dafa Real Estate and Zhongliang Holdings are still awaiting hearings.
According to the 2023 financial reports recently released by the six major state-owned banks, as of the end of 2023, the total balance of real estate loans of the six major state-owned banks was about 4.09 trillion yuan, an increase of 253.492 billion yuan from the end of 2022, a year-on-year increase of 6.6%. However, in terms of proportion, the proportion of real estate loan balance in total loans has decreased.
Data source: bank financial report, charted by Titanium Media APP
As of the end of 2023, the total balance of non-performing loans in the real estate industry of the six major state-owned banks was about 214.496 billion yuan, an increase of 16.736 billion yuan from the end of 2022. Among them, the balance of non-performing loans in the real estate industry of Bank of China and Industrial and Commercial Bank of China decreased by 7.794 billion yuan and 3.574 billion yuan respectively from the end of 2022, while the other four banks all increased. In terms of the non-performing loan ratio of the real estate industry, the non-performing ratio of the Industrial and Commercial Bank of China, the Agricultural Bank of China, and the Bank of China decreased from the end of the previous year, while the non-performing ratio of the other three increased.
Data source: bank financial report, charted by Titanium Media APP
In this regard, Yin Jiuyong, executive director and vice president of Bank of Communications, said at the results meeting: "In the past year, due to the overall impact of the real estate market, the real estate non-performing loans and non-performing loan ratio have been exposed. In the future, the loan quality control of the real estate industry will continue to be a key area of the bank's work, and it will continue to strengthen the management of real estate business risks, continue to track the changes in the risks of real estate enterprises and projects, and strive to maintain the overall stability of the overall quality of loans in the real estate industry. ”
Industry insiders pointed out that whether it is Deutsche Bank or CCB, the credit risk and credit crisis of insurance real estate companies have been exposed, which has a very important warning effect on the entire real estate industry and financial market.
Yan Yuejin, research director of E-House Research Institute, pointed out: "To a certain extent, liquidation is a strategy for investors to increase their right to speak, exert pressure on risk-taking companies, prevent corporate shareholders from operating in the dark, and is also an important mechanism to safeguard investors' own creditor's rights and interests. ”
On March 9, Ni Hong, Minister of Housing and Urban-Rural Development, said: "For real estate enterprises that are seriously insolvent and have lost their ability to operate, they should go bankrupt and reorganize in accordance with the principles of rule of law and marketization; ”
According to incomplete statistics, 16 real estate companies have been petitioned for liquidation by creditors in Hong Kong, it is worth noting that previously, large-scale real estate enterprises including Evergrande and Country Garden were liquidated by general creditors, while Shimao, which is also a large-scale real estate company, was directly submitted by the bank. Industry insiders pointed out that 2024 may usher in the "liquidation tide" of real estate companies in the history of real estate. (This article was first published in Titanium Media APP, author|Wang Jian, editor|Liu Yangxue)
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