Regulators have successively started to support the implementation of the reasonable financing needs of demonstration real estate enterprises.
On May 20, Country Garden real estate group announced that it had completed the bookkeeping and filing of the first phase of corporate bond “22 country 01” in 2022.
According to the announcement, Country Garden real estate has been registered with the permission of China Securities Regulatory Commission on February 10, 2021, and issued corporate bonds with a total face value of no more than 13.9 billion yuan to professional institutional investors by stages. This corporate bond is a three-year 500 million yuan bond with a coupon rate of 4.5%, with the issuer’s option to adjust the coupon rate and the investor’s resale option at the end of the first and second years; The remaining part shall be issued within 24 months from the date of registration and issuance by the CSRC.
It is said that after deducting the issuance expenses, the funds raised by the bonds will be used to replace the self owned funds advanced by the issuer for the resale of “19 bidi 01” bonds.
the particularity of this financing action is to test the “bond issuance + credit protection” scheme for financing, which belongs to a credit risk mitigation tool. At the same time, Longhu and Midea real estate were selected as model real estate enterprises
Analysts believe that country garden was selected as a model real estate enterprise, which reflects the recognition of regulators on the fundamentals and sustainable operation ability of high-quality private real estate enterprises. This has released a more clear and positive signal of stabilizing real estate, and the financing environment of private real estate enterprises has gradually warmed up.
Tianfeng Securities Co.Ltd(601162) also pointed out that at present, the demand side of real estate is further loosened due to the implementation of urban policies and the decline of housing loan interest rate. Under the background of the central government’s positive attitude towards problematic real estate enterprises, real estate bonds may have a market bottom, which can be more optimistic in the future . Referring to history, we can pay positive attention to the relevant entities that can successfully issue bonds through credit risk mitigation tools.
Financing recovery
Country garden’s issuance of this bond enabled CDs credit protection contract, which is one of the commonly used credit protection tools this is also the first batch of domestic credit bonds successfully issued with credit protection tools among private real estate enterprises China Securities Finance Co., Ltd. and China Securities Co.Ltd(601066) jointly created a credit protection contract for the current bonds of country garden.
This shows that the signal of supporting the reasonable financing needs of real estate enterprises at the regulatory level is gradually obvious.
According to the news of the CSRC on May 11, in order to implement the decision and deployment of the CPC Central Committee and the State Council on supporting the development of private enterprises and the working requirements of the government work report on improving the bond financing support mechanism of private enterprises, the exchange bond market launched a special support plan for private enterprise bond financing to stabilize and promote private enterprise bond financing.
The special support plan for private enterprise bond financing is implemented by China Securities Finance Co., Ltd. with its own funds. Through cooperation with bond underwriting institutions to create credit protection tools, credit enhancement supports private enterprise bond financing with market, prospect, technical competitiveness and in line with the national industrial policy and strategic direction.
According to Huatai Securities Co.Ltd(601688) analysis, CDs, crmw and credit protection voucher are three kinds of frequently mentioned tools in the financing policy of supporting private real estate enterprises. CDs is a one-to-one contract product and cannot be circulated; Crmw is a standardized certificate product, which can be circulated and transferred in the secondary market; Credit protection documents are similar to crmw and can also be transferred. The nature of the three types of instruments is insurance, which can help investors reduce the impact of default risk and resist the risk of valuation fluctuation.
Analysts believe that credit protection contract is an innovative measure to expand the financing channels of private enterprises and alleviate the financing difficulties of private enterprises. Sellers such as securities companies directly enhance the credit of reference debt with their own credit, which helps to improve the financing ability of corporate bonds. At the same time, credit protection contracts can boost investor confidence, provide repayment guarantee for reference debt, and reduce the risk exposure of investors to buy corporate bonds. The “bond issuance + credit protection” scheme increases the means for market institutions to serve the real economy, fills the gap of credit risk hedging varieties in the exchange market, and improves the bond derivatives system.
Dongfang Jincheng also believes that this time, the three private housing enterprises were designated as model housing enterprises to issue bonds, which is a concrete implementation of the previous policy commitments of the regulators and releases a clearer signal to support the reasonable financing needs of Housing enterprises, which is conducive to boosting market confidence and further improving the financing environment of Housing enterprises
The agency pointed out that while helping to maintain the steady and healthy development of the real estate industry, it also helps to give play to the role of real estate in stabilizing the macro-economic market in the current stage of great downward pressure on the economy. At the same time, the selected real estate enterprises are all private enterprises, which also reflects the regulators’ support and encouragement for the financing of private enterprises, which is in line with the policy guidance of “improving the bond financing support mechanism of private enterprises” proposed in the government work report of the two sessions this year.
Fundamental benefits
Looking at the real estate enterprises involved in financing with credit protection tools this time, it can be found that its characteristics are obvious: they are all private enterprises, and have the characteristics of good financial fundamentals control and previously recognized by the capital market
Huatai Securities Co.Ltd(601688) pointed out that this round of policies acted quickly, with clear subjects, specific measures and clear policy signals, which directly improved investor confidence. In the policy easing, credit protection tools were set up for real estate enterprises for the first time to specifically support private real estate enterprises and help avoid the risk of default, which is more targeted. In addition, high-quality private enterprises take the lead in testing the water, and the demonstration effect is stronger.
Taking country garden as an example, since the continuous improvement of the financing market environment in November 2021, it is one of the first private real estate enterprises to successfully restart the financing channels at home and abroad. It has successively approved the 5 billion medium vote incremental quota in the inter-bank Trading Association, issued 284 million yuan supply chain ABS in Shanghai Stock Exchange and 521 million yuan supply chain ABS in Shenzhen Stock Exchange; In December 2021, it issued a public offering corporate bond of 1 billion yuan with a term of 2 + 2 years on the Shanghai Stock Exchange; In January this year, another HK $3.9 billion convertible bond was successfully issued overseas.
Country garden has also been recognized by major cooperative financial institutions. In March 2022, it successively signed 15 billion yuan and 40 billion yuan strategic cooperation agreements with China Merchants Bank Co.Ltd(600036) , Agricultural Bank Of China Limited(601288) Guangdong Branch of China.
Since 2021, although the industry has experienced a downward cycle, the company’s fundamentals have not been greatly impacted, and it still has sufficient available cash reserves. The financial report of 2021 shows that the company’s interest bearing liabilities, medium and short-term debts and other core data decreased significantly year-on-year. By the end of 2021, the unused credit line of country garden was about 261.5 billion yuan.
In terms of the three red lines, the company is still in a relatively healthy yellow level, with good performance in net loan ratio and cash short debt ratio. The asset liability ratio excluding advance receipts has also decreased from 80% at the end of 20 to 74%. The company will adjust from yellow to green before the middle of 2023.
The above signs show that after this round of cycle adjustment, high-quality financial resources will gradually move closer to high-quality real estate enterprises.
for the future market, the current policy bottom has been relatively clear. With the recent reduction of just needed or improved mortgage interest rates and the reduction of five-year LPR interest rate of the central bank, the market is already in the process of bottom building, and real estate enterprises with good fundamentals are also expected to take the lead in mastering the development opportunities
According to the statistics of the central index Institute, more than 100 cities have optimized and adjusted real estate policies more than 200 times this year. Many institutions believe that the recent frequent positive real estate policies reflect the policy’s determination to resolve real estate risks. Under the policy intensive underpinning, the market’s confidence in real estate is expected to accelerate the recovery, promote the improvement of sales collection and financing of real estate enterprises, and the inflection point of real estate sales is expected to come in advance.
Even in the process of cycle adjustment, country garden still maintains the growth elasticity. In 2021, the company realized 558 billion yuan of equity sales, which remained stable year-on-year, and the sales scale continued to rank first in the industry; In the first four months of this year, the amount of equity sales reached 121.87 billion yuan, which continued to be in the forefront of the industry.
By the end of 2021, the equity and marketable resources of country garden in China were about 1484.6 billion yuan. There are also potential rights and interests that are basically locked but not signed. The saleable resources are about 336.5 billion yuan, a total of about 1.8 trillion yuan, which can maintain the sales demand of the company in the next three years or so. 98% of the marketable value at the end of 2021 is located in areas with a permanent resident population of more than 500000; 93% are located in the area of population inflow; 75% are located in five metropolitan areas. It is estimated that the annual marketable volume of equity in 2022 will be more than 650 billion, and the annual removal rate of this part of the volume is expected to be no less than 70%.
Shenwan Hongyuan Group Co.Ltd(000166) analysis shows that real estate is still the pillar industry of China’s national economy, and the contribution of the industry itself and the industrial chain to GDP accounts for nearly 30%. However, under the current multiple regulation and financial difficulties, the impact on the economy may gradually enter the low drag stage. In view of the recent frequent voice of the government emphasizing stabilizing the economy, stabilizing growth and preventing and controlling financial risks, while stabilizing the economy is in urgent need of stabilizing real estate, it is expected that the policy repair at both ends of supply and demand of the real estate industry is expected to accelerate, and will promote the optimization of the industry pattern and further enhance the concentration. High quality real estate enterprises are expected to usher in a double increase in quantity and quality. Six H shares such as country garden are recommended.
