Sale of assets and shareholder capital injection of R & F Properties to start a new round of self-help
Author: Zheng Na Lin Caiwei
The two announcements after the market on September 20 reflected that R&F Properties (02777.HK), a large-scale real estate company that started in South China, has entered the stage of self-help.
R&F Properties announced that as executive directors and major shareholders of R&F Properties, Li Silian and Zhang Li, intend to provide listed companies with 8 billion Hong Kong dollars in shareholder funds, which will be completed within one to two months. Almost at the same time, Country Garden Services (06098.HK) announced that it would acquire R&F Properties at a price of no more than 10 billion yuan.
In August of this year, at the interim results meeting held by R&F Properties, its chairman Li Silian once said: “We are still immersed in selling what we have.” The two announcements on the 20th mean that R&F is adopting a variety of measures. To ease the pressure on cash flow, the company has finally reached the point of selling “cash cows” since it gradually fell into liquidity tension in 2020.
Although R&F’s announcement of the two major shareholders’ injecting capital is called “showing major shareholders’ continued commitment to the company and unwavering confidence in the company’s business and development”, the company’s high leverage ratio and total debt make the outside world Has long been full of worries about the liquidity of this company. Huang Lichong, president of Huisheng International Capital, said, “The current financial situation of R&F Properties is relatively bad, and some debts must be repaid before borrowing from shareholders.”
In the past five years, R&F has experienced a round of leveraged expansion. The total interest-bearing debt has risen from 120.852 billion at the end of 2016 to 197.141 billion at the end of 2019. Although efforts are being made to reduce the total debt in 2020 and the first half of 2021, as of At the end of June this year, the company’s book interest-bearing debt balance still exceeded 140 billion, and it was still one of the few real estate companies that stepped on the “three red lines” and ranked in the red.
Major shareholder blood transfusion
On September 20, after the Hong Kong stock real estate sector experienced a slump, Country Garden Services issued an announcement stating that its indirect wholly-owned subsidiary had signed an equity transfer agreement with R&F Properties, intending to acquire Fuli Global at a consideration of no more than 10 billion yuan.
After the completion of the acquisition, Country Garden Services will hold 100% of the equity of Fuliang Global and indirectly hold 100% of the equity of each target company. Fuliang Global, R&F Property Services Hong Kong, Guangzhou Fuxing and the target company will become subsidiaries of Country Garden Services.
Prior to this, R&F Properties originally planned to be listed separately. The company’s prospectus disclosed on the Hong Kong Stock Exchange in April showed that it held various property companies indirectly through Fuli Global; at the same time, Li Silian and Zhang Zhang each held 46.48% equity in R&F Properties.
The sale of 100% of the property company’s shares was unexpected by market participants. “I thought R & F would first sell the company’s investment properties, such as office buildings or hotels in first-tier cities.” An industry insider said.
Since the beginning of this year, many real estate companies have tried to withdraw funds through the sale of large assets, but there have not been many transactions. An agent engaged in asset transactions told China Business News that at present, there is more room for institutions to acquire core assets, and asset prices are relatively low. At the same time, considering that hotels and office buildings are often mortgaged, even if they are sold, the seller The amount of funds that can be withdrawn after tax payment is also very limited.
R&F’s sale of the property sector regarded as “cash cows” may be a helpless move. Li Changjiang, executive director and president of Country Garden Services, described the acquisition to a reporter from China Business News as “not giving up high-quality projects.” After reaching this transaction with Country Garden Services, the listing of R&F Properties will also come to an end.
In Huang Lichong’s view, the transfer of R&F Properties, which has already been submitted, shows that R&F Properties’ current financial situation is very unsatisfactory.
Just 4 minutes after the announcement of the transfer of property equity, R&F Properties also issued a voluntary announcement stating that the company’s main shareholder chairman Li Silian and co-chairman and president Zhang Li will provide approximately HK$8 billion in shareholders to support the group. The funding is expected to be completed in the next one to two months. R&F Properties is expected to receive approximately HK$2.4 billion on September 21, 2021. According to the announcement, Li Silian and Zhang Li also provided financial support in the form of interest-free loans in the past.
R&F Properties stated that after receiving financial support from the two shareholders, the company “even if there is no further external financing or cash flow from non-continuous business such as asset sales”, it is expected that there will be sufficient funds to cope with the short-term Debts that are due within.
Still stepping on the “three red lines”
As a relatively high proportion of holding properties, R&F Properties has had a higher leverage ratio than its peers since its listing. At the end of 2019, the company’s net debt ratio was as high as 199%, which was among the highest in the industry.
As early as 2008, after the outbreak of the global financial crisis, R&F was once in a liquidity crisis. It tried to list and transfer the Grand Hyatt Hotel located in Zhujiang New Town, Guangzhou in Hong Kong to bail out, but was relieved by the rebound of the domestic real estate market.
However, in a round of real estate development cycle since 2016, the company has chosen an expansion strategy that continues to increase leverage, and the total amount of interest-bearing liabilities has increased year by year.
Data show that from 2016 to 2019, R&F Properties’ total assets were 226.411 billion, 298.109 billion, 366.194 billion and 427.326 billion, respectively. The corresponding total interest-bearing liabilities were 120.852 billion, 142.243 billion, 163.299 billion and 197.141 billion.
Especially in 2017, R&F acquired 73 Wanda hotels with a transaction consideration of 17.7 billion yuan, which increased the company’s total interest-bearing debt by more than 20 billion and 30 billion in the following two years.
By 2020, R&F Properties, whose company size and total debt have been substantially expanded, will once again fall into a liquidity dilemma. According to the data disclosed by the group, the company’s total assets as of the end of 2020 were 442.185 billion. Although the total interest-bearing liabilities during the same period decreased from the end of 19, it was still as high as 159.73 billion, accounting for 36% of the total assets. In August of the same year, since the relevant departments introduced new “three red lines” management regulations for large real estate companies, R&F has become one of the real estate companies that have stepped on the “three red lines”.
By the end of June 2021, R&F Properties’ interest-bearing borrowings were about 143.35 billion yuan, and short-term borrowings were about 51.9 billion yuan; during the same period, its cash and cash equivalents (excluding restricted cash) were only 12.76 billion yuan, which was not enough. To cover its short-term debt.
While most real estate companies have achieved “downgrades”, R & F is still stepping on the “three red lines” and ranking in the red range. As of the end of June this year, the company’s short-term cash debt ratio was only 0.55; its net debt ratio was 123.5%. ; After excluding advance receipts, the debt-to-asset ratio is 74.9%. At the same time, the company’s financing costs also rose further to 7.7%.
The gap between short-term debt and cash holdings is as high as more than 30 billion, making the market full of worries about this company.
On September 13, Lianhe Credit Rating announced that it decided to maintain the credit rating of the main body of Guangzhou R&F Properties Co., Ltd. and “16 R&F 04” bonds at AAA, and the rating outlook was adjusted from stable to negative.
Earlier, Moody’s also lowered the corporate family rating of R&F Properties from “B1” to “B2” and lowered the CFR rating of R&F Hong Kong from “B2” to “B3”. At the same time, since late August, the prices of many of R&F’s bonds have changed, among which “18 R&F 10” has fallen by more than 20% within a week.
At the same time, the operating conditions of R&F Properties failed to give confidence to the outside world. At the end of the first half of this year, R&F Properties recorded a turnover of 39.49 billion yuan, a year-on-year increase of 18%; while net profit fell sharply by 18.8% to 3.181 billion yuan, and the net interest rate was 8.1%, a year-on-year decrease of 3.6 percentage points.
The road to self-help
Liquidity pressure put R&F Properties into a passive situation. In early January this year, the company pledged part of the equity of its three companies to Guangzhou Urban Investment Investment Co., Ltd. to obtain corresponding financial support.
Since then, R&F Properties has launched a “price-for-volume” model to accelerate sales and promote payment. The average selling price in the first half of the year has dropped from 9,200 yuan per square meter to 8,800 yuan. According to R&F Properties, this is mainly due to the company’s approval. Lower prices to stimulate sales and destocking.
At the mid-term performance meeting in August this year, Li Silian said that the previously accumulated rent-collecting properties, including hotels, office buildings, restaurants, etc., are willing to sell.
In fact, at the end of 2019, when the net debt ratio of R&F Properties reached 199%, the company had already begun to change its pace, suspend the acquisition of land, and put forward the goal of reducing debt at the beginning of 2020, that is, to reduce the net debt ratio to 185% by 2020 Within. Especially after the “three red lines” in the second half of 2020, the sale of assets has become an important measure of R&F Properties, which is also called the “weight reduction plan” by Li Silian.
In August 2020, R&F Properties sold 70% of its equity in Guangzhou R&F International Airport Comprehensive Logistics Park, with more than 6 billion yuan of funds recovered; in the fourth quarter of the same year, it also sold some equity in several projects, realizing about 4 billion yuan; in the first half of this year, An additional 800 million yuan of income was obtained through the sale of subsidiaries.
At present, R&F Properties still holds a large number of hotel assets. As of the end of June 2021, R&F Properties has 91 hotels in operation, with a total construction area of 3.99 million square meters and a total number of 27,409 rooms. In addition, the company has about 44 hotels under construction and planning, a total of 135 hotels.
In the voluntary announcement on the 20th, R&F still emphasized, “In terms of asset sales, the group has accepted the letter of intent for the offer for certain non-core assets, and will continue to negotiate with potential buyers for other assets designated for sale.” R&F Properties said , “Even though the asset sale is still subject to due diligence and the final agreement reached by the relevant parties, the group is greatly encouraged by the feedback from potential buyers on the quality of the assets held by the group.”
R&F also disclosed that “the group has about 35.1 billion yuan in investment property assets and about 33.2 billion yuan in hotel assets. The market value of the hotel assets is about 46 billion yuan.”
Although R&F said that short-term liquidity pressure has eased after receiving 8 billion fund support from shareholders, the high debt repayment pressure has not yet been fundamentally resolved. On the 20th, R&F Properties’ stock price fell 7.34% to 4.29 Hong Kong dollars per share, with a PB of only 0.15 and a market value of only about 16.1 billion Hong Kong dollars.