[Look at China News on November 1, 2021]Following China Evergrande, Sony Holdings, and Fantasia, the top 100 real estate company, Modern Homes, defaulted on a US dollar bond with a coupon rate of 12.85%. So far, the number of defaulted housing companies rose to nine during the year. Moody’s and Fitch have downgraded the bond ratings of Modern Land. China’s dollar debt crisis is still fermenting, and more and more real estate companies have fallen.
On October 26, Modern Land, listed in Hong Kong, announced that due to the adverse effects of the macroeconomic environment, the real estate industry environment, and the epidemic, the repayment arrangement for the principal and interest of the 12.85% senior notes due in 2021 could not be reached. . The balance of the above-mentioned senior notes of Modern Land is US$250 million with a coupon of 12.85%. The principal and interest should have been redeemed on October 25 this year.
Previously, Modern Land sought to extend the maturity date of the US dollar bond by three months and stated that it had prepared US$100 million to pay the first principal amount of US$87.5 million after the renewal agreement was passed. At the same time, Chairman Zhang Lei and President Zhang Peng Privately providing 800 million yuan in shareholder loans for debt repayment can be said to be much better than Xu Jiayin. However, on October 21st, Modern Land terminated the request for renewal consent, and its USD debt default is inevitable.
In addition to the US dollar debt that defaulted on this debt, there are currently 4 remaining US dollar debts of Modern Land, totaling approximately US$10.97, which will mature in February 2022, November 2022, April 2023, and March 2024. . In other words, there are still 4 months before Modern Land will face the pressure of another US$200 million in debt. Perhaps the 800 million that shareholders “pay out of their pockets” are already thinking about “to overcome the difficulties” for the next debt repayment.
Like the real estate giants such as Evergrande and Country Garden, the coupon rate of the issuance of US dollar bonds of Modern Land is very high, with an average coupon of over 11%, and the financing cost is very high.
In December 2018, Modern Land issued a US$150 million senior note with an interest rate as high as 15.5%, setting the highest level of debt issuance by domestic and even Asian real estate companies, causing an uproar and suspicions. As far as the author knows, the financing costs of some US dollar bonds of Evergrande and Country Garden have reached such a high level. Not to mention bond income, even the financial income of China’s P2P heyday is rarely so high. The release of bonds to give such high interest rates is obviously a posture of preparing to borrow and not repay the debt.
Since October, the US dollar debt of Modern Land has fluctuated sharply. Many international rating agencies have downgraded their family business ratings. The company’s credit qualifications have continued to deteriorate, and the pressure on refinancing has soared. Borrowing money is difficult, and borrowing money is expensive. Now it is basically impossible to borrow money, and the road of borrowing new and repaying the old is also blocked. This is similar to the real estate problems of Evergrande, Fantasia, and Sony.
Modern Real Estate was established in 2000 and is headquartered in Beijing. In 2013, it was listed on the Hong Kong Stock Exchange.
Driven by the demand for scale, Modern Land’s asset-liability ratio has continued to rise in recent years. Except that the asset-liability ratio of 76% in 2015 was slightly lower than that of 78.7% in 2014, the asset-liability ratio of Modern Land from 2016 to 2020 was 83.4%, 84.47%, 85.86%, 87.45% and 86.6%, respectively.
As of the end of June this year, Modern Land’s total assets were 98.436 billion yuan, total liabilities were 86.26 billion yuan, net assets were 12.18 billion yuan, and the debt-to-asset ratio was 87.6%. Such a debt-to-asset ratio, even if it is placed in a series of thunderstorms, is considered to be relatively high.
Contemporary Real Estate has 66.18 billion yuan in current liabilities, of which 9.347 billion yuan is due to short-term debt within one year. Compared with the scale of short-term debt, Modern Homes has good liquidity, with 13.62 billion yuan in cash and cash equivalents on its books, which can cover short-term debt, and the short-term debt repayment pressure is controllable.
In addition, Modern Land has 20.08 billion non-current liabilities, mainly long-term loans, and its long-term interest-bearing liabilities total 19.41 billion yuan. The total liabilities total more than 86 billion.
Although the debt index has been maintained at a high level, the sales scale of Modern Land has not improved. In 2020, the contract sales of Modern Land will be 42.212 billion yuan, which has not yet exceeded the 50 billion mark. You know, its management has had the lofty ambition of “reaching 90 billion yuan in 2010.” To put it bluntly, there is a lot of debt, but the house cannot be sold, so there is no money to pay the debt. This also corresponds to the bleak domestic real estate sales in recent years.
Therefore, whether it is Evergrande, Fantasia, Sony, Modern Land, or even Sunac and Country Garden, the future fate of these real estate giants seems to be doomed. Debt defaults are thunderous, bonds have plummeted, ratings are downgraded, and financing is even more difficult. , The house cannot be sold, the debt is insolvent, and then it is directly bankrupt and liquidated.
Of course, some friends can say that Chinese real estate companies can default on US dollar debt. Not paying back all, dragging Wall Street and other Western investment banks into the water. This is of course possible. Just one Evergrande default has dragged down Wall Street, the Japanese pension, and the Korean pension. If all of these real estate companies in China default on their debts, there will be a financial bomb of more than 5 trillion yuan. It can indeed trigger a financial crisis. If these western investment banks want to collect debts, they can only come to China to go through the judicial process. Everyone knows that if they go to China to collect debts, the Chinese courts that look at the money will not be on their side. Therefore, their odds of winning are very low. Corporate debt is different from sovereign debt, and cannot be compulsorily repaid by freezing China’s national debt by the United States. Therefore, in addition to some guaranteed debt, these investors in the West may really suffer a big loss.
But the problem is that if China’s real estate dollar debt defaults, the international credit of Chinese companies may be zero. All Chinese companies may not be able to borrow U.S. dollars in the market, nor can they use this channel to replenish China’s foreign reserves. At the same time, China’s foreign investment may accelerate the withdrawal, which may cause greater losses and blows to China. Therefore, the current Chinese executives are highly nervous about the dollar debt issue of real estate companies.
On October 25, the National Development and Reform Commission convened some real estate companies for a meeting in Beijing tomorrow. At present, many real estate companies have received notices, and some real estate company executives have rushed to Beijing. “The National Development and Reform Commission directly notified by telephone, and most of the participating companies are large USD debtors.” There were 10 real estate companies participating in the meeting, namely: China Shipping, Poly, Vanke, Sunac, Gemdale, Longfor, Zhongliang, Xincheng, Greentown, Xuhui. Please note that there is no Evergrande in the middle, which may prevent other companies from following in Evergrande’s footsteps.
At the current time, the National Development and Reform Commission has convened a meeting of some real estate companies with a relatively high scale of USD bond issuance. In addition to checking the maturity of real estate companies’ foreign debt and the pressure on real estate companies, it also released a signal of maintaining stability in a certain sense.
Since the beginning of this year, the regulation and control policies of the real estate industry have continued to be tightened, the financing environment has changed, and the blind expansion of some real estate companies has been curbed. The recent increase in credit risk incidents of real estate companies, with the occurrence of debt defaults and negative credit incidents in individual medium and large real estate companies, the credit status of the real estate industry has caused tensions among domestic and foreign investors, which have jointly increased the upward pressure on real estate dollar bond yields.
The Crane Institute also stated that since 2021, debt defaults by real estate companies have increased and gradually spread to leading real estate companies. Superimposed on the impact of the two centralization of housing loans and other policies, foreign investors have intensified their concerns about the domestic real estate industry, which has led to the recent fluctuations in the overseas bond issuance market of real estate companies, and the issuance of new overseas bonds by real estate companies has been blocked.
According to statistics, in the first September of 2021, real estate companies issued 237.9 billion yuan of bonds abroad, a year-on-year decrease of 24%. The amount of overseas bond issuance financing by real estate companies only accounts for 75% of the full-year maturity amount in 2021, and 72% of the newly issued bonds by real estate companies are less than the total amount of bonds maturing in 2021.
While the amount of overseas debt issuance and financing declines, real estate companies will face a “peak” of debt repayment next year. Data shows that real estate companies will have the highest dollar debt maturity in 2022, reaching 375.5 billion yuan, and there is greater pressure on overseas debt repayment; dollar debt maturing in 2023 will also reach more than 300 billion yuan.
With the emergence of liquidity pressure on some real estate companies, more than 10 real estate companies have been downgraded by rating agencies since October. According to foreign media statistics, as of September 30, Moody’s, Fitch, and Standard & Poor’s have downgraded the ratings of Chinese developers 91 times, three times the number of upgrades this year. If you add the data from the beginning of October to the present, the number of times that real estate companies have been downgraded by rating agencies this year has exceeded a hundred times, the most in history.
Recently, real estate companies have taken self-help measures one after another. In order to prevent the default of US dollar debt, some real estate companies have begun to initiate exchange offers. In addition, in order to boost market confidence, real estate companies set off a wave of repurchase in the overseas bond market.
But these obviously do not help, and cure the symptoms rather than the root cause. Because these cannot fundamentally solve the profitability problem of real estate companies. Profit is the only way to solve the debt problem. And now the whole real estate cycle in China is coming to an end, the real estate market has entered a period of great recession, there is a serious surplus of houses in China, and the real estate bubble is serious. In this context, there is no other way to go except for the bankruptcy of real estate companies.
Editor in charge: Yu Zhen
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