The real estate industry is still in the cold.
Judging from the 2022 semi-annual report data disclosed by real estate companies, there are only a handful of companies showing positive growth in revenue and net profit, and a sharp decline in profits has become the norm in the industry. Statistics from Securities Times reporters show that among the 194 A-share and Hong Kong-share real estate companies that have released semi-annual reports, 141 have seen a year-on-year decline in net profit, accounting for 73%. There are also 19 real estate companies such as Evergrande and Sunac that have yet to release their financial reports.
From a sales perspective, in the first eight months of this year, the contracted sales amount and area of ??most real estate companies dropped significantly. Evergrande’s contracted sales fell by 97% from January to June. Shimao, Sunac, and Yuzhou Group all fell by more than 60% from January to August. Vanke, Country Garden, Gemdale Group (11.23 1.72%, Diagnostic Stock), etc. 1 ~The year-on-year decline in August was around 30%.
Unsatisfactory capital recovery and tightening financing environment have led to rising credit risks in the real estate industry, including "financial product" redemption crises, bond extensions, deferred interest payments, and substantial defaults. As of September 19, the default scale of real estate bond balances including extensions reached 134 billion yuan, involving 30 bond issuers.
Yang Hua (pseudonym), manager of the risk management department of a securities firm, told a reporter from the Securities Times: "Now it is basically impossible to issue real estate bonds. Our company clearly stipulated in March this year that no real estate bonds are allowed to be purchased, regardless of whether it is a central enterprise." Neither state-owned enterprises nor private enterprises can buy real estate bonds, and they have also sold out all the real estate bonds they previously held."
Real estate companies are experiencing a "sales downturn - tight funding - financing constraints - and weakening expectations of home buyers. -Sales further decline" in a negative cycle.
In order to break the negative cycle, improve credit, and face overwhelming debts, most real estate companies are trying their best to eliminate debts. On the one hand, they increase sales and dispose of assets to actively withdraw funds; on the other hand, they negotiate with creditors in advance Communicate and discuss extensions to avoid triggering cross-default clauses and trade time for capital turnover space. In addition, there are measures to increase credit through strategic investments such as the introduction of state-owned enterprises and central enterprises to obtain financial support.
Liquidity dilemma of real estate companies
Sales of commercial housing are a key indicator that reflects the liquidity of the entire real estate market.
On September 16, the National Bureau of Statistics announced real estate industry data from January to August 2022. In August alone, the country's largest commercial housing sales area was 97.12 million square meters and the sales amount was 1.01 trillion yuan, year-on-year. down 23% and 20% respectively. National commercial housing sales are still at historically low levels.
From the perspective of sales receipts (personal mortgage deposits and prepayments), sales receipts in the first eight months of 2022 were 4.9 trillion yuan, a year-on-year decrease of 32.5%; sales receipts in August alone were 6,218 billion, a year-on-year decrease of 23.6%.
Sales data is more intuitive when reflected on specific real estate companies. A reporter from the Securities Times compiled sales data from January to August of 20 well-known real estate companies. The contracted sales of the 20 real estate companies totaled 2.04 trillion yuan, accounting for 41.6% of the entire industry in the first eight months. Poly Development (17.69 0.80%, diagnostic stock) had the highest sales amount, reaching 281.7 billion yuan, a year-on-year decrease of 24.72%; followed by Vanke, with sales amount of 279.9 billion yuan, a year-on-year decrease of 36.8%. Six real estate companies, including Evergrande, World Trade Co., Ltd., Sunac, Yuzhou Group, and R&F Real Estate, saw their sales contract amounts drop by more than 60% year-on-year. There were 10 real estate companies whose sales contract amounts fell by 30% to 55% year-on-year. Including leading real estate companies such as Vanke, China Jinmao, and OCT A (4.84 -2.42%, Diagnostic Stock).
Sluggish sales directly affect the semi-annual report data of real estate companies. Judging from the released 2022 semi-annual report, the number of real estate companies with year-on-year revenue declines accounted for 60%, and the year-on-year decline in net profits accounted for 73%. Loss has almost become the norm in the industry.
Among them, R&F Real Estate’s net profit loss attributable to its parent company in the first half of this year reached 6.92 billion yuan, followed by CCRE Real Estate’s loss of 5.6 billion yuan. Blu-ray Development (1.35 -2.88%, Diagnostic Stock), which has suffered equally astonishing losses, lost nearly 5 billion yuan again in the first half of this year after losing more than 10 billion yuan in 2021. At the same time, Tahoe, Sunshine City (2.03 -3.79%, diagnostic stocks), and Rongsheng Development (2.45 -4.67%, diagnostic stocks) also lost 2 billion to 4 billion yuan in net profit attributable to their parent companies.
On the one hand, real estate companies are experiencing large-scale losses, and on the other hand, regulatory policies on pre-sale funds are becoming stricter. Real estate companies have stranded a large amount of funds at the project company level and cannot return to the parent company level.
A senior executive of a large real estate company in Shenzhen told a reporter from the Securities Times: "The main channel for money now is the sale of assets in addition to sales, but most of the money collected from sales is in the supervision account and can be used The proportion is very small, probably less than 20%. It is difficult for the group to get money from the project, resulting in liquidity difficulties for the group."
According to the financial situation of 71 key listed real estate companies based on CRIC statistics. Judging from the results, the cash holdings of key sample listed real estate companies in the first half of this year fell by 15% from the beginning of the period, and the proportion of restricted cash is still increasing. At the same time, total interest-bearing debt fell slightly, but short-term interest-bearing liabilities rose 1.39%. Against this background, the unrestricted cash short-term debt ratio dropped to 1.1. If pre-sale regulatory funds are excluded, the ratio will be even lower, raising concerns about the short-term safety margin.
Another key indicator also reflects the current tight liquidity of real estate companies-financing net cash flow.
Affected by the industry's leverage reduction trend, the financing scale of real estate companies has continued to decline, and the net financing cash inflow has dropped from approximately 700 billion yuan in 2017 and 2018 to approximately 3,400 billion yuan in the first half of 2019 to 2020. billion, a decline of 51%. Beginning in the second half of 2021, corporate financing restrictions have increased, with a net financing cash outflow of 397.8 billion yuan in the second half of the year, ultimately resulting in a net financing cash outflow of 189.3 billion yuan in 2021. In the first half of 2022, the net financing cash flow of real estate companies once again saw a net outflow, reaching 143.9 billion yuan. If all Hong Kong real estate companies disclose their semi-annual reports, this figure will rise.
The decline in sales and the net outflow of financing have both dragged down the real estate industry. Some real estate companies have fallen into liquidity difficulties, leading to the occurrence of credit risk events one after another.
Debt defaults are common, especially US dollar bonds
In 2021, the default amount of real estate bonds reached 73.5 billion yuan, involving 67 bonds, and the scale of defaults reached the peak in recent years. Since 2022, the credit profile of the real estate industry has not been significantly improved.
According to statistics from Securities Times reporters, calculated based on default and extension dates, as of September 21, 168 real estate bonds have defaulted or been extended, of which 97 have actually defaulted. The scale reached 56.324 billion yuan, 71 bonds were extended, and the bond extension scale was 126.71 billion yuan.
Bond investor Yang Yan told reporters: "For now, bond extension is actually a breach of contract. For example, the Yuzhou Real Estate USD bond I purchased myself originally expired in March this year, but it has not yet expired. The developer negotiated an extension with us, but because we couldn’t reach an agreement, we kept delaying it. In the final analysis, there is no money to repay the real estate bond extension in the current market. ”
If the scale of the extension is included, the real estate industry will not be able to repay the loan this year. The scale of bond defaults has actually reached 183 billion yuan, a record high. These bonds involve 54 issuing entities, all of which are private enterprises, covering most well-known real estate companies except Vanke and Country Garden, such as Sunac, Zhenro Real Estate, Zhongliang Holdings, Kaisa, R&F Properties, Shimao Group, Fantasia, Yuzhou, etc.
It is worth mentioning that of the 97 real estate bonds that experienced substantial defaults, 65 were US dollar bonds, accounting for 67%, and the scale of default was 31.03 billion yuan, accounting for 55%.
Data from the China Index Research Institute shows that in the second half of this year, the outstanding bond balance of real estate companies was 492.07 billion yuan, of which overseas debt accounted for 35.4%; as of September 21, the balance of bonds due within one year It was 972.37 billion yuan, of which overseas debt accounted for 38%.
A wave of defaults has set off across the industry, causing unease among fixed-income investors. "One after another, all the U.S. dollar real estate bonds we hold are overdue. We no longer care about the yield, but focus on how the company pays." Zheng Qiong, another investor who holds real estate U.S. dollar bonds, said.
Affected by individual credit risk events, the secondary market for Chinese U.S. dollar bonds also continued to decline. Wind data shows that there are currently nearly a hundred real estate U.S. dollar bonds priced below $10. One bond from Sunshine Group even quoted a price of $0.763. The face price of the bond issuance is $100 per piece, and the face price has fallen by 99%. This means that investors believe that the company does not have the ability to pay, so they openly vote with their feet in the secondary market.
As of September 21, the latest Asian Chinese USD Bond Index (Markit·iBoxx) reported 170.02, the Asian Chinese USD Real Estate Investment Grade Bond Index reported 187.97, and the Asian Chinese USD Real Estate High Yield Bond Index reported 187.97. 135.76, which are all at relatively low levels in history, and hit the lowest level in mid-August.
The sharp fluctuations in the secondary market of real estate dollar bonds mean that real estate companies are facing challenges in refinancing and the credit risk of the industry is once again exposed. The impact of a U.S. dollar bond default cannot be underestimated. Yang Hua said, "A default in the open market will directly cause the company to no longer be able to raise funds publicly from the capital market, thereby further deteriorating the company's funding situation, and will also affect other real estate companies." "The cost of bond issuance and financing has improved."
Although bond issuance has been hindered, there are signs of improvement
"We issued a notice in March this year requiring that neither state-owned enterprises nor private enterprises are allowed to buy real estate bonds. Real estate bonds are not allowed to be bought. Previously, the total number of real estate bonds was more than 2 billion yuan. The current stock of real estate bonds is about 400 million to 500 million yuan. It seems that a lot of them were sold before March. This decision is still correct," Yang Hua said.
According to Yang Hua, most securities firms currently have explicit or implicit regulations that do not allow the purchase of private real estate bonds, and some only allow the purchase of central or state-owned real estate bonds.
Even if bonds can be issued, issuers and intermediaries are cautious in the actual operation process, very cautious. Yang Hua told reporters: "We previously helped a real estate company issue ultra-short-term securities. As the lead underwriter in the issuance plan, we made relevant commitments and exits in response to insufficient bond subscription, insufficient payment, issuer default, delayed issuance, etc. Arrangement, there are many additional conditions.”
Under the background of relatively loose financing environment in the past 10 years, U.S. dollar bonds have become one of the main financing channels for real estate companies, but now the financing function of overseas debt for real estate has shrunk significantly.
Wind data shows that from the beginning of 2022 to September 22, the scale of overseas debt issuance by mainland real estate companies was US$17.1 billion, while the scale of overseas debt issuance in the same period last year reached US$43.4 billion, a year-on-year decrease of 60.6% this year . At the same time, it has become increasingly difficult for real estate companies to "borrow new debt to repay old debt." The net financing amount of US dollar debt has been negative for 12 consecutive months, with a net financing amount of -$42 billion, indicating that the new debt issued by real estate companies is still insufficient. To pay off old debts.
In addition, according to data from the China Index Research Institute, in the first half of 2022, the scale of non-bank financing in the real estate industry fell to 482.56 billion yuan, a significant year-on-year decrease of 56.5%. Among them, credit bonds fell by 24.2% year-on-year, trusts fell by 79.6%, and ABS fell by 41.1%.
To sum up, real estate companies have fallen into a negative cycle of "sales decline - funding tightening - financing blocked - home buyers' expectations weakening - sales further decline".
To prevent the situation from deteriorating further, the latest support measures announced by the state include a 200 billion yuan special relief fund to "guarante the delivery of buildings".
In the previous August, the National Association of Financial Market Institutional Investors convened a number of private real estate companies to hold a symposium to discuss supporting the development of real estate companies through ChinaBond Credit Enhancement Company. debt financing.
As the first batch of companies to participate in the conference, five real estate companies, Country Garden, Longfor, Midea Real Estate, Xincheng Holdings (18.12 -3.21%, Diagnostic Stock), and CIFI, have recently completed bond issuance and financing. The coupon rate is between 3.2% and 3.33%, the issuance scale is 1 billion to 1.5 billion yuan, and ChinaBond provides a "full unconditional irrevocable joint liability guarantee".
Fang Ling of CRIC Real Estate Research Institute said that the "full unconditional irrevocable joint liability guarantee" can be regarded as the strongest guarantee measure to protect the rights and interests of creditors. This move aims to improve the performance of real estate companies. financing environment.
It is reported that the real estate companies participating in the second symposium include Zhongnan Construction (2.38 -4.42%, Diagnostic Stock), Jinke, Powerlong, Shimao Group, R&F and many other private real estate companies. Enterprises have begun preparations for credit enhancement and bond issuance.
Not only that, there are still many real estate companies that are still actively managing their liabilities, refusing to "lay flat" and hoping to survive the difficult times.
Debt restructuring and active self-rescue
Standing on a high debt platform, the road for real estate companies to reduce debt is destined to be long. Especially in response to maturing U.S. dollar bonds, as of September 30, the scale of maturing U.S. dollar bonds reached 52.17 billion U.S. dollars (approximately RMB 369.2 billion).
According to Yang Yan, companies only need to show investors a firm willingness to repay and a redemption plan, so that investors can see that the company is not insolvent and that it is possible to get out of the predicament in the future as policies pick up. Generally investors are willing to sit down and have a good discussion.
According to statistics from the S&P Global Ratings research report, from 2018 to August 2022, the usual methods for dealing with the risk of defaulted domestic and overseas bonds of Chinese real estate companies are replacement (exchange offer) and extension. Replacements accounted for nearly 79% of the overseas defaulted bonds that have been disposed, while extensions accounted for 72% of the domestic defaulted bonds that have been disposed.
According to statistics from a reporter from the Securities Times, since the beginning of this year, 47 listed real estate companies have issued 204 announcements on bond extensions/replacements, and the real estate bond market has been buzzing with "extensions." As of September 21, the scale of real estate bond extensions reached 126.7 billion yuan, a record high.
For example, R&F packaged 10 U.S. dollar bonds totaling nearly 5 billion U.S. dollars at one time in August and extended them as a whole, ranging from 3 to 4 years. The document is filled with conditions such as modifying interest rates, adding relevant designated asset disposals, and modifying "default event" terms.
On September 13, KWG announced that two debt swaps totaling US$900 million in September 2022 had been approved by approximately 93% of investors in total principal amount, and one in September 2023 The replacement of US$700 million in bonds was approved by approximately 91% of investors with total principal amount. For the remaining six US dollar bonds maturing from 2024 to 2027, a consent solicitation was launched, and the consent solicitation was also passed by modifying some investor protection provisions to exempt cross-defaults with exchange bonds or extending the maturity date of existing bonds.
But behind the seemingly simple announcement is a fierce game, with many parties involved. According to reporters, less than 8% of KWG's bondholders disagree with the replacement plan, and the company is still communicating with these creditors in the hope of finding an appropriate solution.
“In fact, we don’t have many choices, because there is no collateral for purchasing real estate bonds, so once the real estate developer defaults, we don’t have much leverage and there is not much room for negotiation. Either Agreeing to the extension will either result in the company defaulting on the debt or liquidating the company. The money will always have to be repaid. Of course, if you purchase US dollar bonds, you can also petition the Hong Kong High Court for liquidation. Evergrande, Sunac, and Fantasia have all experienced this incident, but the probability of a successful liquidation petition is very small, and it is just a way for creditors to vent their dissatisfaction," said Zheng Qiong, an investor who holds US dollar bonds.
Almost all private real estate companies that have defaulted are embarking on debt restructuring. Deloitte's global contingency planning and bankruptcy services leader Li Jiaen provided self-rescue suggestions for real estate companies that are actively trying to survive through debt.
The first is equity restructuring. Introduce strategic investors/financial investors from state-owned enterprises and central enterprises, and balance the interests of investors, original shareholders, creditors, and small and medium-sized shareholders, evaluate the overall liquidity and investment value of the group, provide pricing basis for the rebalancing of interests, and evaluate the conditions for investment exit path and security, and when specifying a reorganization plan, fully consider how to rebalance the interests of relevant parties through resource allocation, which is the key to a successful reorganization.
The second is debt restructuring. Sort out the debt risks at three levels: overseas holding companies, domestic holding companies, and domestic project companies, and conduct a hierarchical analysis of the debt at each level. For the stratified debt at each structural level, consider the corresponding debt restructuring plan, including specific debt restructuring conditions, debt restructuring cycle, debt repayment fund needs, debt repayment resources, response plans for drastic measures by individual creditors, and possible refinancing plans wait. The key to successful debt restructuring is to treat creditors fairly and obtain the support of major creditors. By winning the support of major creditors, the efficiency of restructuring negotiations can be improved.
The third is asset/business restructuring. Sort out core and non-core assets, and analyze their value under continuing operations and liquidation scenarios, so as to consider specific restructuring methods such as retaining resources, disposing of resources, introducing third parties to revitalize resources, and isolating risks. In the process of implementing asset/business reorganization, attention should be paid to the stable operation of the assets/businesses involved in Baojia Building, as well as the source of Baojia Building funds, the security of the entry and exit of such funds, and the fund monitoring plan.
In addition to actively promoting debt restructuring, real estate companies are currently also introducing credit protection tools such as CDS (Credit Default Swap) or CRMW (Credit Risk Mitigation Warrant).