In the past few days, I have been looking at the financial reports of listed real estate companies, and found that in the downward market, every company is facing the same problems: large amounts of impairment, no increase in profits, serious decline in net profit, and difficulty in reducing debt.
However, each has different problems, such as Vanke's credit debt overfinancing, Yuexiu Real Estate's off-balance sheet debt, China Merchants Shekou's high non-performing asset ratio, and OCT's low marketization.
Compared with these real estate companies, the crisis faced by Sino-Ocean Group is more urgent and has been ignored by many people.
In the 2023 financial report, Sino-Ocean Group's agreed sales were 50.53 billion yuan, a decrease of 50%. The revenue was 46.46 billion yuan, 300 million more than the previous year, the gross profit halved to 1.183 billion yuan, and the net profit loss attributable to the parent company expanded to 21.1 billion yuan.
Let's not talk about gross profit margin, net profit margin, and net profit margin attributable to the parent company, which are the core indicators of assessing and making money. Just seeing the further expansion of the net profit loss attributable to the parent company, I feel very incredible, and I also perceive a very important signal:
Sino-Ocean Group may be an "Evergrande-esque" ending.
At the beginning of 2022, Sino-Ocean Group has declined unexpectedly fast. The decline is not only in revenue and profit performance, but also in profit plummeting by 531.82%, net profit plummeting by 407%, core net profit plummeting by 684%, and the company's attributable loss reached 15.93 billion yuan. The loss was mainly due to the large-scale impairment provision and the loss recorded by Sino-Ocean Group on the sale of subsidiaries.
Not making money is secondary.
Sino-Ocean Group continued to sell off core assets such as Beijing Yitigang and Chengdu Taikoo Li, but not only did not increase cash flow, but the more it sold, the more it lost. When we realized that even high-quality assets such as Yiti Harbour and Taikoo Li were sold, it showed that the problems faced by Sino-Ocean Group were not simple.
Auditors also marked the annual earnings report with a qualified opinion, revealing the scars that Sino-Ocean Group has covered for years.
The performance of the 2023 financial report is not surprising to say that it is unexpected, and it is not surprising to say that it is not unexpected. Not surprisingly, its performance has not improved much, and its operating difficulties have not been detrimented. And unexpectedly,
Sino-Ocean Group is ready to become insolvent.
In the past three years, equity assets have dropped from 44.78 billion yuan in 2021 to 25.86 billion yuan and then to 20.79 billion yuan. On the books, Sino-Ocean Group still has net assets of more than 20 billion yuan, but excluding the interests of minority shareholders, the scale of assets held by itself is only 7.03 billion yuan.
In terms of proportion, the equity attributable to Sino-Ocean Group holders decreased from 63.96% in 2021 to 49.27% and then to 33.81%.
The decrease in net assets is related to the impairment in the past two years, with impairment losses of 6.536 billion yuan and 11.283 billion yuan respectively, with a total of 17.82 billion yuan.
At this rate of impairment of assets, Sino-Ocean Group's net assets attributable to the company will soon be cleared to zero, or even a loss. Some industry insiders told us that Sino-Ocean Group recently held a high-level meeting, at which it admitted that the company is currently insolvent.
Now, the cash in hand is only 5 billion yuan, and it also includes the restricted part, which is interest-bearing and 96.143 billion yuan, which is less than 1 billion yuan less than in 2022, of which 69.75 billion yuan, accounting for 73%, is due within one year. The net borrowing ratio is already as high as 438%.
Sino-Ocean Group is now facing the question of survival.
At the end of 2023, Sino-Ocean Group has a full-caliber land reserve of 36.213 million square meters, an equity area of 19.073 million square meters, an equity ratio of only 52.67%, and an average land cost of 6,500 yuan.
It doesn't make much sense just to look at the land bank in hand, but to see whether the land has been mortgaged. In November 2022, the news of the default of the factoring financing of accounts receivable of a wholly-owned subsidiary of Sino-Ocean Group Zhengzhou has torn off his fig leaf.
Subsequently, shareholder Chinese Shou extended a helping hand to buy the Chengdu Taikoo Li and Beijing Yitigang projects. The market downturn and the hole are too big, even Chinese Life, ranked 89th in the world's top 500, has no way to continue to provide funds to "fill the hole".
Later, the joint working group of Chinese Life and Dajia Insurance entered the board of directors of Sino-Ocean Group, with the understanding of the real situation of the enterprise. The shareholders of the two major insurance companies may also understand two points: they are powerless to return to the sky and the trend is difficult to reverse. Among them, Chinese Life directly cleared its long-term equity investment in Sino-Ocean Group in its 2023 interim financial report.
At the beginning of this year, Sino-Ocean Group's domestic credit bond extension plan, the balance of 18.27 billion yuan of 9 bonds was extended for 30 months, and the principal was amortized in quarterly installments according to the rhythm of 5%, 10%, 15%, 15%, 20% and 35% of the principal from the 15th month.
Although this tough way of reducing debts has made some creditors feel uncomfortable, it at least shows Sino-Ocean Group's determination not to evade debts.
At the 2023 annual financial results meeting, Chinese Life executives also directly stated their attitude, "The investment strategy has always maintained a prudent and stable investment style, and will strictly control the credit risk and asset quality of investment projects." The company's investment exposure to Sino-Ocean Group is very small, and the impairment work has been completed last year, and there will be no adverse impact on the company in the future. ”
In other words, Sino-Ocean Group's first task is to complete the "guaranteed delivery" of the debt and existing projects, and the shareholders will "abandon the treatment" after they can do what they can.
If you look at Sino-Ocean Group from this perspective, what it can do is to become: a contractor.
In reality, although Sino-Ocean's agency construction business has been laid out as early as 2005, it has not been promoted as the main business, nor has it formed a complete set of chains, and it was only through the disposal of real estate projects under Anbang Insurance that a special agency construction platform was established around 2018, with a preliminary framework.
It was not until after the company's "thunderstorm" that Sino-Ocean Group made every effort to develop the agency construction business. In recent months, the publicity of Sino-Ocean Construction has also been overwhelming. At present, in the agency construction business, Greentown Group, Bluetown Group, and CIFI Construction Management have formed a head advantage, and there are also China Merchants Shekou, Longfor, and Sunac on the back of the belly.
So, it's still the same: stepping on the wrong rhythm.
In the real estate industry, when talking about mixed enterprises, many people will directly think of Vanke, but in fact, Sino-Ocean Group should be regarded as the first real estate company to complete the mixed system reform, also known as the "first red chip stock".
Ownership reform + successful listing has helped Sino-Ocean Group to quickly achieve scale expansion, and it is also the first batch of domestic enterprises to achieve sales of 10 billion yuan, and the scale entered the top 20 in the industry in 2009.
This year is also the pinnacle of Sino-Ocean Group's development history, and after the peak, it is often a downhill road. In the next few years, it will develop businesses such as pension, logistics, commercial real estate, and long-term rental apartments while holding high-priced land.
The main reasons for this situation are:
The first and third major shareholders Chinese Life, Nanfeng Group, and Anbang Insurance struggled in turn, and different insurance funds had preferences for different assets, which did not calm down until Nanfeng and Anbang withdrew; second, Li Ming focused on building a financial investment platform, Sino-Ocean Capital, which hid a lot of off-balance sheet liabilities.
After defaulting on the debt, Li Ming became a "backstabber" and was accused of "guessing the wrong node of business strategy". However, the shareholders themselves are also at least 30% liable. Becoming a "backstabber", Li Ming's best ending is to retire.
In September last year, Li Ming had rarely appeared in public events, and there was no logical observation at the time to speculate that he was preparing to leave office. However, the article was harmonized.
Until the end of March this year, Li Ming resigned as chairman of Sino-Ocean Holding Group, which was already a signal. But the official reason given is that Li Ming will focus more on the operation and management of listed companies.
At this time, I can't help but ask: Sino-Ocean Group is ready to become insolvent, what businesses do it need to focus on operation and management?
What will be the final outcome of Sino-Ocean Group?
The first is to enter bankruptcy liquidation. Because there is a time lag of 2-3 years in the settlement of the real estate industry, there are still 7.03 billion yuan of net assets on the books, and more than 67 billion yuan are short-term interest-bearing debts, so it is also necessary to see whether Sino-Ocean Group can speed up the completion of the settlement and collection, which is easier said than done.
Secondly, it depends on whether the creditor will carry out compulsory liquidation in accordance with the law, and how many off-balance sheet liabilities exist.
As mentioned earlier, after the joint working group of insurance shareholders entered the market, it was tough and determined to reduce debt. The probability of bankruptcy liquidation is relatively small.
The second is privatization and delisting. This is a relatively good result, and it is more feasible, and the key is the will of the shareholders.
Judging from the shareholding situation announced by shareholders at the end of June 2023, the shareholding ratio of the top management of Chinese Life, Dajia Insurance and Sino-Ocean Group has reached nearly 63%, which is a relatively high concentration of shareholdings.
If you want to complete the privatization and delisting, you only need to complete the acquisition of the remaining 37% of the shares, and the current total market value of Sino-Ocean Group is 2.056 billion Hong Kong dollars, and the completion of the acquisition only requires less than 800 million Hong Kong dollars.
For Chinese Life and Everyone's Insurance, this is just a small amount of money. With a small amount of money, you can "save face", so why not?