China’s real estate industry has finally ushered in a glimmer of dawn.
According to the survey data of Zhongyuan Real Estate Research Institute at the beginning of the year, in 28 cities across the country, the real estate policy has been fully relaxed after the Spring Festival and has basically returned to the normal level. Compared with the beginning of the fourth quarter of last year, the mortgage loan lending cycle is mainly more than 3 months. At present, the loans for new houses and second-hand houses are basically concentrated within 2 months.
At the same time, the real estate enterprises troubled by funds have launched a vigorous “self-help movement” since the second half of last year, from selling high-quality properties such as properties to low-cost allotment of shares, and then to “the boss pays out his own money”, many real estate enterprises have actively self-help.
The situation remains grim
At the beginning of 2022, the three major rating agencies Fitch, standard & Poor’s and Moody’s respectively issued credit prospects for the real estate industry in 2022.
According to Kerui report, from the sales side, the three rating agencies said that the sales in 2022 will show a year-on-year downward trend. Among them, Moody’s predicts that the national contract sales will decline by 5% – 10% in 2022; S & P predicts that commercial housing sales will decline by about 7% in 2022. Fitch is pessimistic and expects contract sales in 2022 to be 10% – 15% lower than that in 2021.
The three major rating agencies pointed out that the domestic and foreign financing environment of China’s real estate enterprises in 2022 is still severe. According to incomplete statistics, from December 2021 to January 14, 2022, the credit ratings of the three major rating agencies were still adjusted downward, with a total of 11 downgrades and 6 cancellations, mostly for real estate enterprises that have experienced thunderstorms or defaults; Only a small number of real estate enterprises obtained the maintenance of the rating, and the rating increase did not appear.
At the same time, real estate enterprises are still facing greater overseas debt repayment pressure.
According to Kerui statistics, the maturity of overseas debt financing of 100 typical real estate enterprises in 2022 is mainly concentrated in the first half of the year, of which the maturity scale in January is as high as 62.7 billion yuan, the highest in recent two years.
Superimposed on the weak sales, it is expected that there will still be default events of real estate enterprises in 2022, which may further attack the confidence of creditors and make the refinancing environment of real estate enterprises more tense.
At present, China’s financial institutions have suspended new loans and even pulled loans from real estate enterprises. In addition, the debt outside Shanghai cannot be issued, the pre-sale funds are strictly regulated, and many sources are semi closed.
In this context, it is expected that the possibility of negative rating or downgrade of real estate enterprises in 2022 is still high. Among them, real estate enterprises with low credit rating will be more affected, mainly reflected in the shortening of the average maturity of bonds and the high average coupon rate.
Zhang Bo, President of the branch of anjuke Real Estate Research Institute, told reporters that previously, development enterprises relied too much on non-standard financing, such as asset management and trust, with high cost and short accounting period. Once the market went down, sales were blocked and payment collection was restricted, and “fast turnover” could not work, the enterprise would probably suffer deeply; M & A is also an expansion method often used by enterprises, which helps to improve the scale of enterprises in the short term. However, due to information asymmetry and other reasons, those who are light sacrifice enterprise profits, and those who are heavy lose both scale and profits.
In this context, the differentiation between enterprises will still be very obvious at the financing and sales ends. Even at this stage, the differentiation is still intensifying.
In addition to state-owned enterprises, central enterprises and a few high-quality private enterprises, other real estate enterprises are now very difficult to finance.
Lin Bo, general manager of Kerui Research Center, told reporters that even if the state requires banks to increase financial support for real estate enterprises, they will not support those real estate enterprises without debt repayment ability and sufficient cash flow. The improvement of policies is of little use to such enterprises.
Self rescue campaigns have been launched one after another
On the evening of February 9, China Fortune Land Development Co.Ltd(600340) issued an announcement on the progress of the company’s debt restructuring. At present, the amount of debt restructuring signed and realized is 42.918 billion yuan, and the corresponding amount of debt interest reduction and penalty interest exemption is 2.869 billion yuan.
At present, two self-help models have become the mainstream: the first is the “borrowing the new and returning the old” model of many new bonds issued by real estate enterprises. The purpose of funds includes project construction, repayment of project loans, supplement of working capital, etc; Secondly, by selling the projects and businesses in hand, we can quickly obtain cash. The latter, for example, R & F real estate has transferred the equity of Guangzhou International Airport comprehensive logistics park twice in a row, with a total transfer price of nearly 5.7 billion yuan.
In addition to Evergrande, R & F, Aoyuan and Xinli, Yango Group Co.Ltd(000671) , Shimao, Xincheng, shoukai and other projects are also being packaged for sale.
In addition, land acquisition is suspended or not taken; The introduction of war investment, the sharing of risks, the repurchase of equity and the extension of debt have become the self-help means of real estate enterprises.
Since October last year, nearly 30 real estate enterprises, including Shimao, R & F, Yuzhou and Xiangsheng, have successively adopted different ways of financing, such as allotment of shares and sale of assets.
Lin Bo told reporters that at present, most real estate enterprises are facing a similar situation. The purpose is to keep the company current and make the company last longer.
Lin Bo pointed out that in the face of the debt on schedule, state-owned enterprises and central enterprises can solve the problem by financing. In contrast, some private enterprises can only survive by selling equity and asset projects. Therefore, selling off assets has become the fastest way.
Initial results
Lin Bo told reporters that a series of actions, such as asset sale, introduction of war investment and debt extension, are to trade time for space. For some enterprises, it is indeed at a critical juncture of life and death, and capital inflow is needed to solve the urgent need.
However, most enterprises set aside more time to wait for the change of policy market through asset transfer and debt adjustment.
“It’s best to extend the term. If not, repay the interest through other channels, which is also a boost to the confidence of the capital market.” Lin Bo said.
It is worth noting that a new round of financing relaxation has indeed begun.
Previously, Poly Developments And Holdings Group Co.Ltd(600048) launched the issuance of 2 billion yuan medium-term notes in the inter-bank market, China Merchants Shekou Industrial Zone Holdings Co.Ltd(001979) planned to issue 3 billion yuan of ultra short-term financing bonds, Gemdale Corporation(600383) completed the issuance of 1.5 billion yuan of medium-term notes. From the current situation, the financing channels are gradually relaxed, but it is still a drop in the bucket for the whole real estate industry. Although the future expectations of rating agencies are pessimistic, some real estate enterprises have received positive comments. The common ground of such real estate enterprises is mainly reflected in the large refinancing space and good inventory quality. In the future, it is expected to maintain stable development in the adverse trend, or even break the situation in the adverse trend.
Zhang Bo told reporters that since last year, real estate enterprises have maintained stable cash flow by accelerating asset transfer and major shareholder blood transfusion, and made debt repayment response in advance. From the current attitude of real estate enterprises to deal with the pressure, the vast majority of real estate enterprises are actively self-help, and many real estate enterprises even greatly enhance their solvency through the transfer of excellent core assets.
Overall, it is expected that the real estate enterprises as a whole can smoothly survive the centralized debt repayment period in March, and there will be no large-scale default in the market. However, it is not ruled out that some real estate enterprises will be split or even merged due to debt problems, and the industry concentration will still be further improved.
The self-help behavior of enterprises may not have obvious results in the short term, but it is also essential. Under the dual pressure of policy and market, it is relatively certain that enterprises continue to withdraw, and this process may last for a long time. After the orderly release of industrial risks, the face of the industry may usher in new changes, and the industrial pattern will also change at that time. Enterprises that have experienced the test of risk will occupy a higher market share, and central enterprises and state-owned enterprises with their own credit advantages may occupy a higher weight.
