The successful registration of the first M & a bill in the real estate industry in recent years has not only transmitted the “ice breaking” signal of M & A financing to the market, but also caused some disputes.
On January 12, China Merchants Shekou Industrial Zone Holdings Co.Ltd(001979) announced that the company had completed the registration of the first phase of medium-term notes (M & A) of RMB 3 billion in 2022. However, half of the funds will be used to repay the company’s bank loans. From the subject matter of M & A, the first phase of 1.29 billion yuan will be used for the acquisition of an old transformation project last year.
Since December 2021, the regulator has repeatedly voiced support for the M & A of large high-quality real estate enterprises on the projects of enterprises in danger, and encouraged financial institutions to provide relevant services, China Merchants Shekou Industrial Zone Holdings Co.Ltd(001979) as the first real estate enterprise to complete the registration of M & A bills, it has attracted much attention. However, analysts believe that although the current market has high expectations for M & A financing of real estate enterprises, it still faces many difficulties in implementation. The premise for the recovery of M & a market is still the recovery of sales and land market, and several special M & A may take the lead.
RMB 3 billion medium note is used for M & A and debt repayment
According to the prospectus for M & a Notes published in China Merchants Shekou Industrial Zone Holdings Co.Ltd(001979) , of the 3 billion yuan medium-term notes, 1.5 billion yuan is intended to support enterprises with strong synergy in the industry to alleviate liquidity pressure, including but not limited to replacement of early investment funds and subsequent asset investment and acquisition. At present, 1.29 billion yuan has been identified for M & A purposes, The remaining 210 million yuan will be used for future projects that meet the requirements of M & A; 1.5 billion yuan was used to repay the company’s bank loans. The 2.58 billion yuan medium-term notes issued in the first phase include three-year and five-year notes, with an issuance scale of 1.29 billion yuan.
China Merchants Shekou Industrial Zone Holdings Co.Ltd(001979) did not point out the target of M & A, but it was clearly a “urban renewal project”: the project of company a was an urban renewal project focusing on residential buildings. Company B, the shareholder of company a, transferred 80% of the equity and creditor’s rights of company a on August 9, 2021, which was finally won by the subsidiary of the issuer. So far, China Merchants Shekou Industrial Zone Holdings Co.Ltd(001979) , company C and company B finally hold 40.8%, 39.2% and 20% of the equity of company a respectively. The issuer is the largest shareholder after this M & A. It is reported that the consideration of China Merchants Shekou Industrial Zone Holdings Co.Ltd(001979) this acquisition is about 2.154 billion yuan. The amount raised by this bond issuance for M & A does not exceed 60% of the total M & a price, mainly by replacing the early investment funds and subsequent asset investment.
The first financial reporter noted that China Merchants Shekou Industrial Zone Holdings Co.Ltd(001979) mentioned in the land purchase briefing in August last year that the company has added six projects in Foshan, Guangzhou, Nantong, Kunshan, Dongguan, Shanghai and other places in about one month since the disclosure of the sales and land purchase briefing in July. Among them, the total transaction price of the new old reconstruction project in block 17, Hongkou District, Shanghai is 4.218 billion yuan, and the company owns 41% of the rights and interests of the project, The land area is about 37000 square meters, and the capacity building area is about 41000 square meters.
Public information shows that the project is in the charge of Shanghai Hongkou urban renewal and Construction Development Co., Ltd. (hereinafter referred to as “Hongkou urban construction”), which is established by Shanghai urban renewal and development company and Shanghai Hongfang (Group) Co., Ltd. (hereinafter referred to as “Hongfang group”) under Shanghai real estate group with 60% and 40% respectively in March 2019. According to the official website of Hongkou District government, the project is the first old reform project of “urban cooperation, government enterprise cooperation and district oriented” signed by residents in the city. It is also the largest single plot of old reform in Hongkou District in recent years.
However, after that, the equity of the project continued to be transferred. In September 2020, Hongfang group transferred 20% equity of Hongkou urban construction to Shanghai North Bund (Group) Co., Ltd. (hereinafter referred to as “North Bund group”); In August 2021, Hongkou urban construction listed and transferred 80% equity and RMB 4.061 billion debt of Shanghai hong\’anli Enterprise Development Co., Ltd. (hereinafter referred to as “hong\’anli”), won the bid with Suzhou Zhaokai Real Estate Co., Ltd., a joint venture of China Merchants Shekou Industrial Zone Holdings Co.Ltd(001979) and a subsidiary of Greenland Group, and participated in the project. The transaction announcement of Shanghai United equity exchange shows that the transfer reserve price of the transaction is 4.217 billion yuan and the transaction price is 4.223 billion yuan.
For the reasons for the M & A of company a’s project, China Merchants Shekou Industrial Zone Holdings Co.Ltd(001979) also mentioned in the M & a bill raising letter that due to the huge volume of the residential project, it is necessary to introduce developers with strong capital and operation ability to ensure the smooth progress of the project and avoid stranding in the middle of the project. This also means that China Merchants Shekou Industrial Zone Holdings Co.Ltd(001979) the fund-raising did not invest in several accident enterprises concerned by the market, but in real estate enterprises positioned as government functional state-owned enterprises to transfuse blood for large-scale old transformation.
there are many difficulties in Project M & A of real estate enterprises
In December last year, the central bank and the China Banking and Insurance Regulatory Commission jointly issued the notice on doing a good job in M & a financial services for risk disposal projects of key real estate enterprises. Since then, Zou LAN, director of the financial market department of the central bank, said that project M & A among real estate enterprises is the most effective market-oriented means for the real estate industry to resolve risks and realize liquidation. Prior to this, the central bank, China Banking Insurance Regulatory Commission and SASAC convened some private and state-owned real estate enterprises and major banks to hold a symposium to encourage high-quality enterprises to increase mergers and acquisitions of real estate projects in accordance with the market-oriented principle, encourage financial institutions to provide financial services for mergers and acquisitions, help understand risks and promote industry liquidation. The Symposium on real estate enterprises held by the dealers association also made it clear that priority will be given to supporting the registration and issuance of bonds for M & A and project construction.
After becoming the first real estate enterprise to successfully register M & A bills this time, according to the data in the third quarterly report of last year, after the bond issuance is completed and implemented according to the above raised fund utilization plan, the asset liability ratio in the consolidated financial statements of China Merchants Shekou Industrial Zone Holdings Co.Ltd(001979) will increase by 0.05%, and the current ratio and quick ratio will remain unchanged. China Merchants Shekou Industrial Zone Holdings Co.Ltd(001979) indicates that the company has the risk of high short-term debt repayment pressure. By the end of 2020, China Merchants Shekou Industrial Zone Holdings Co.Ltd(001979) interest bearing debt totaled 160.444 billion yuan, of which 60.048 billion yuan was due within one year, accounting for 37.43%.
Some people in the real estate industry told reporters that the financing cost of M & A bills in the inter-bank market is relatively low and the requirements for the issuer’s qualification are high. If the purpose of the funds is not the project of the accident enterprise, and some of them are used to repay the debt, it will inevitably cause controversy. But he also stressed: “no matter what kind of M & A, the probability is that state-owned enterprises take the lead, because it is indeed more reliable in terms of qualification. As for the subject matter of M & A, we still look forward to the formal \’ice breaking\’ of the projects of enterprises in danger.”
Previously, the Huatai Securities Co.Ltd(601688) research report pointed out that the implementation of the policy is expected to moderately “untie” the debt end of high-quality central enterprises and state-owned enterprises and alleviate the liquidity risk of enterprises in danger. However, the implementation needs the quota of banks, the willingness of real estate enterprises and the support of supervision. At present, there are four main difficulties: first, the lack of high-quality M & A projects; Second, it is difficult for the enterprises in danger to make due adjustment. The state-owned enterprises need to take into account both income and social responsibility, and how to negotiate the consideration is the key; Third, it is difficult to grasp the scale of information disclosure; Fourth, supporting policies need to keep up.
Citic Securities Company Limited(600030) Chen Cong’s team also said that although the current low credit real estate enterprises expect “living water” from the Project M & a market, considering the reality, large-scale project M & A will only occur after the recovery of housing sales market and land market. Chen Cong believes that in the case of complex stock projects and incomplete improvement of industry expectations, the willingness of potential acquirers and acquiree is not strong. At present, the main body that may initiate M & A is mainly state-owned enterprises. Considering the principle of maintaining and increasing the value of state-owned assets, it is expected that after the end of March 2022, with the gradual recovery of sales, the real estate project M & a market is expected to recover in the second half of the year.
Chen Cong’s team also pointed out that in reality, several types of special mergers and acquisitions may be carried out first: first, high credit companies are more motivated to acquire the equity of joint ventures with low credit companies; Second, banks and financial institutions facing bad debt risk may seek M & A sponsors and provide direct financial support for M & A for some projects that are easy to be decommissioned and have good asset quality but the development subject is in trouble; Third, mergers and acquisitions of light capital product management and business management platforms.
