Contemporary real estate 300 million debt thunderstorms, housing enterprises dollar debt repayment peak will be to the financial report data response lag debt repayment peak in next year

Contemporary real estate finally can't hold up. On October 26, Modern Real Estate (01107. HK) announced that the repayment arrangement for the principal amount and interest payable on a 12.85% INTEREST RATE US dollar note due 25 October 2021 could not be fulfilled on the same day.

According to the Daily Business Herald (www.bizvcw.com), the US dollar bond was issued by Modern Land in April 2019 with an issue size of US$300 million and the remaining principal amount of US$250 million.

This bond is no stranger to the outside world. On October 11, Modern Land announced that it seeks to extend the maturity date of the remaining part by three months after redeeming the 12.85% senior notes due October 25, 2021, to improve liquidity and cash management and avoid any potential repayment defaults.

"We want the entire industry to be healthy and stable, but reality tells us that the entire industry is indeed facing great challenges." At that time, the person in charge of Contemporary Real Estate told the media, "The company's internal operations are still normal, each project is promoted in accordance with the node to complete and deliver the normal completion and delivery work, and each sales case is sold normally." ”

Unfortunately, bad news followed. On 21 October, Contemporary Land issued an announcement of a short suspension of trading pending the publication of an announcement containing inside information about Modern Property. On October 26, the company officially announced that the US dollar debt was overdue, and the suspension of trading continued.

It is worth mentioning that Modern Real Estate is not the only real estate company that has recently planted on the US dollar bond, and the bond market, especially the US dollar bond market, has experienced great fluctuations. Since August this year, the ratings of a number of real estate companies and securities companies have been frequently downgraded, and the situation of shareholders buying back "protective disks" has also appeared from time to time. According to statistics, the tide of concentrated debt repayment of US dollar debt has not yet arrived, and whether several housing enterprises with a large proportion of foreign debt can survive or become the key to whether the industry financing can continue normally.

<h1 class="pgc-h-arrow-right" data-track="55" > the response to the financial report data lagged</h1>

At the time of the semi-annual report, no one seemed to notice anything wrong with the debt of contemporary property.

"The Group's cash, restricted cash and bank balances increased by approximately 23.6% from approximately $14,093 million at 31 December 2020 to approximately $17,425 million, with a solid cash flow position, mainly due to an increase in sales volume during the period." The company's semi-annual report reads. As of the first half of the year, the asset-liability ratio after excluding pre-collection was 83%, the net debt ratio was 93%, and the cash short-term debt ratio was 1.46. From the perspective of the "three red lines", only the asset-liability ratio has crossed the line, and the cash short-term debt ratio is still some distance from this warning line.

Of course, this is not completely without rational explanation. According to the analysis of industry insiders, the branches of housing enterprises are relatively complex, and it is more difficult to mobilize cash between various branches and subsidiaries. Just looking at the financial statement data, it is difficult to judge the actual cash flow of housing enterprises. At the same time, Jiang Kai, vice president of Zhonglian Zhidao, also revealed to the media that if most of the composition of corporate cash is in the form of bank deposits, then "the probability is to put an account". For example, a sudden cash payment at the end of the reporting period will flow out immediately at the beginning of next month, and the money is not a liability account. "The real situation is that there is not so much money, it is all borrowed to flush the report." He said.

A similar situation also appeared in the recent thunderstorm of the Fantasia year. Even more exaggerated than hyundai real estate is that before the maturity of the DOLLAR bond on October 4, Fantasia denied the overdue, saying that the company did not have liquidity problems. After the overdue, Fantasia finally couldn't stop exposing that "liquidity is plagued by the market environment", issued a short suspension announcement, and immediately "lay flat". More than half a month has passed, fantasia has not shown signs of getting out of trouble, and the stock is still suspended.

Coincidentally, although before the thunderstorm, Fantasia had already reported a debt default crisis, and the three major international rating agencies had also downgraded Fantasia many times, but the data on the financial report was still green. In the 2021 semi-annual report, Fantasia Holdings said that the company has cash and equivalents of 27.177 billion yuan, and the cash-to-debt ratio has reached 1.59. The defaulted debt is worth about 1.4 billion yuan.

<h1 class="pgc-h-arrow-right" data-track="54" > peak debt service next year</h1>

The suspicion of financial report manipulation seems to have become a reversal of deception, which has been played out by the actual debt default, and naturally followed by the questioning of investors. The Daily Business Herald (www.bizvcw.com) noted that not long ago, the market just recovered from the concern that Evergrande would trigger the "Lehman Crisis", and the default of the US dollar bonds of housing enterprises detonated, which once again led to a sharp decline in the secondary market price of Chinese DOLLAR bonds. Housing enterprises with a relatively large scale of US dollar debt, such as Yuzhou, Sunshine City, Kaisa, Aoyuan, etc., have not been spared.

On October 11, Bloomberg's aggregated prices showed that Yuzhou Group's U.S. dollar bonds due in February 2024 fell the most since March 26. As of 17:34 on the day, the company's 8.5% bond was down 7.7 cents to 53.2 cents for every $1. In terms of funds, Penghua Global High Yield Bond Fund (RMB denominated) became one of the funds that fell the most affected by this. Public data shows that on October 8, the net value of the fund fell by as much as 17.63%, and the net value of the unit was 0.8325, which can almost be said to be a "cliff-like" retracement.

However, what is more alarming is that the peak maturity of dollar bonds has not yet arrived. In order to alleviate market anxiety, some housing companies have opened a dollar debt repurchase model. However, from the overall point of view, the pressure on the maturity and continuation of the US dollar bonds of real estate enterprises in the future is still relatively large.

Wind data shows that before the end of 2021, 28 US dollar bonds of housing enterprises will mature, with a maturity scale of 6.3 billion US dollars. The full year of 2022 will reach $62 billion, and the number of expiries will reach 206. In 2023, there will be a significant decline, with a full-year maturity of $48 billion and a maturity of 138. Specifically, March 2022 will be the peak, with USD debt maturing in the month reaching US$8.455 billion.

The Daily Business Report (www.bizvcw.com) notes that this is related to the peak period of bond issuance in 2017-2018. Since 2017, real estate companies have turned to overseas financing, and real estate dollar debt has heated up significantly in 2017. This can be intuitively seen from the numbers: in 2016 and 2017, the number and scale of bonds issued were 28, $9.698 billion, and 172 and $162.5 billion, respectively. In May 2018, the National Development and Reform Commission and the Ministry of Finance jointly issued the Notice on Improving the Market Constraint Mechanism to Strictly Prevent Foreign Debt Risks and Local Debt Risks (No. 706 (2018) of the Development and Reform of Foreign Investment), and the boom in overseas bond issuance began to be extinguished.

Now, with the peak of debt repayment approaching, housing enterprises will face more than just a credit crisis. "Although the scale of dollar debt of housing enterprises is not too large, default may trigger a series of chain reactions." Zhang Bo, president of the branch of 58 Housing Research Institute, said, "For example, defaulting real estate enterprises will face domestic and foreign financing difficulties, triggering a more serious liquidity crisis, and if it is not handled properly, it may trigger a repayment crisis." In addition, other real estate companies may face financing availability problems, which in turn endanger the entire real estate sector and its upstream and downstream enterprises, thus triggering greater economic downside risks and financing difficulties. ”

<h1 class="pgc-h-arrow-right" data-track="44" > steady word</h1>

Housing enterprises have frequently defaulted on dollar bonds, and supervision has been shot.

On October 15, Zou Lan, director of the Financial Market Department of the Central Bank of China, said at a press conference on financial statistics that the sharp decline in the price of US dollar bonds of overseas real estate enterprises "is the natural reaction of the market after the occurrence of default events", and will urge bond-issuing enterprises and their shareholders to strictly abide by market discipline and rules, properly handle their own debt problems in accordance with the principles of marketization and rule of law, and actively fulfill their statutory debt repayment obligations.

On October 26, the Department of Foreign Investment of the National Development and Reform Commission convened a meeting of some real estate enterprises in Beijing, according to media reports, most of the real estate companies participating in the meeting were large US dollar debt owners, and the purpose of the meeting was to find out the maturity of the US dollar bonds of real estate enterprises. This also releases a signal of stability maintenance to a certain extent.

In addition, in the face of the difficulty of capital management of housing enterprises, the signal of policy recovery is also frequently released. On October 15, at the central bank's third quarter financial statistics press conference, Zou Lan, director general, believed that some financial institutions misunderstood that banks should not issue new development loans, and "in the future, real estate credit will be kept stable and orderly." On October 20, at the annual meeting of the Financial Street Forum, Liu He, vice premier of the State Council, said that "the reasonable capital needs of real estate are being met, and the overall situation of the healthy development of the real estate market will not change."

To sum up, there are no new changes in the implementation of the real estate bond financing policy, and it is still "a stable word". Under the guidance of the top management, if the financing behavior can gradually return to normal, it will also help alleviate market tensions and restore market confidence.