Core view
In line with the industry tide, the rise of non-performing loans and the decentralization of non-performing assets of banks have led to the birth of national and local AMCs. At present, there are 64 licensed AMCs, forming a diversified pattern of “5 + 2 + banking AIC + foreign capital + n”. There are five national AMCs in China, all of which are registered in Beijing: China Huarong, China Greatwall Technology Group Co.Ltd(000066) , China Oriental, China Cinda, China Galaxy Securities Co.Ltd(601881) . The top four AMCs were established in 1999 and began commercial transformation in 2004. At present, they have become comprehensive financial groups with non-performing asset management, banking, securities, insurance and other businesses. Among them, Cinda and Huarong AMCs have been listed on the Hong Kong stock exchange. With the help of the financial crisis in 20082009, the tide of infrastructure construction, the deregulation in 2012 and the acquisition of a large number of real economic debts after 2010, the scale and leverage of the four AMCs have been rapidly improved. The rising balance of non-performing loans and the fragmentation of non-performing assets have led to the rapid development of local AMCs. Local AMCs were approved after 2014, with a relatively small registered capital, and 54% of local AMCs have a registered capital of 1-5 billion yuan. From the perspective of shareholder background, at present, the first local AMC in each province is actually controlled by the local government, and the shareholder background of the second local AMC is more diversified. As of March 2022, there were 59 local AMCs in China. From the perspective of regional distribution, there are three provinces in Fujian, Guangdong, Shandong, Liaoning and Zhejiang, and the above five provinces account for 25.4% in total, which is consistent with the distribution of non-performing assets and bank non-performing loans in each region as a whole.
In the early golden age of real estate development, the four AMCs established real estate operation platforms; According to our estimation, the non-performing asset management market of the real estate industry has a scale of more than 2 trillion. At the beginning of 2015, China Eastern intervened in real estate by acquiring 50% equity of Shanghai Zhengda, China Huarong established Huarong real estate, and China Cinda established Cinda Real Estate Co.Ltd(600657) . AMC has capital advantages through its real estate subsidiaries, but its trading ability is weak, and there are limitations in development and turnover speed, urban layout, standardization and brand premium. By the end of 2021, the total amount of non-performing assets acquired and restructured by China Huarong and China Cinda was 310.9 billion yuan and 148.8 billion yuan respectively, and those from the real estate industry were 144.1 billion yuan and 62.5 billion yuan respectively, accounting for 46% and 42% respectively. According to our estimation, the scale of non-performing assets in China’s real estate industry is about 2.08 trillion yuan.
In the process of resolving the debt risk of real estate enterprises, the four major AMCs in China have played more of the role of “promoting debt extension and capital injection” in the past cycle. However, in this round, we believe that the scope and intensity of AMC’s participation will be increased. The recent positive actions of AMC institutions on the projects in danger, we believe that the main reasons for entering the real estate market at this time are: 1) policies in place and financial support: China Oriental and China Greatwall Technology Group Co.Ltd(000066) successively issued the theme bonds of real estate M & A projects, which can provide strong financial support for their participation in the asset disposal, Project M & A and related financial intermediary services of venture real estate enterprises. 2) Assets on the table: many real estate enterprises are negotiating the acquisition with AMC. 3) Non performing real estate loans have risen: since the second half of 2021, the risks accumulated in the early stage of the real estate industry have begun to appear, some highly leveraged real estate enterprises have capital problems, and the asset quality of bank real estate business is under pressure. The non-performing rate of real estate loans of the four major state-owned banks increased by 37-247bp at the end of 2021 4) The real estate is close to the bottom, and now is a better time to enter.
AMC mainly purchases non-performing assets such as debt in the rescue of real estate enterprises. AMC becomes the creditor of real estate enterprises by acquiring the creditor’s rights of other institutions to real estate enterprises. Later, AMC can carry out debt restructuring with real estate enterprises and their related parties, and help real estate enterprises reduce short-term liquidity pressure through a series of restructuring arrangements such as repayment amount, repayment method, repayment time and guarantee mortgage. In this process, AMC can also help real estate enterprises revitalize their assets and improve their own operating efficiency by means of capital injection, providing professional knowledge and helping real estate enterprises find partners. When disposing of non-performing real estate assets, AMC is more inclined to connect with high-quality real estate enterprises in advance as the intended acquirer. The specific methods are as follows: 1) restructuring and redevelopment; 2) Jointly manage development and agent construction.
The admission of AMC will accelerate the risk resolution of the real estate industry and the effective clearing of the market. 1) AMC can inject new funds when entering the site. 2) It is conducive to stabilizing asset prices.
After AMC is introduced, it can buy out the creditor’s rights through all acquisitions, better smooth the relationship between creditor’s rights and debt, make a complete plan, make more effective debt settlement arrangements, and jointly revitalize the project. 3) It helps to alleviate the liquidity problem of risk projects and ensure the stable sales of delivery buildings. AMC can better coordinate upstream and downstream, buyers and sellers and government resources, find cooperation with high credit real estate enterprises or agent construction enterprises, complete the follow-up development of the unfinished projects of the insured real estate enterprises, accelerate the release of project liquidity, ensure delivery and stabilize market confidence. We estimate that the scale of non-performing assets disposed by the four AMCs in the real estate industry exceeds 400 billion yuan. We believe that the market may still wait and see the introduction of more favorable policies, and the subsequent rescue efforts and scope can be expanded. The participation of AMC needs further clear guidance of policies to mitigate the risk of stock real estate.
Investment advice
Resolving the risks of the real estate industry is a systematic project. The strength and scope of non-performing asset investment institutions participating in the current rescue of real estate enterprises have been increased. Their rich experience has played a positive role in promoting the resolution of the debt pressure of real estate enterprises and can help the real estate enterprises in distress connect with high-quality prospective acquirers. In the investment business of AMC’s non-performing asset projects, due to frequent thunderstorms by developers, the current business directions are mainly financial debt acquisition business, debt acquisition and debt restructuring of problematic real estate enterprises, M & a loan financing and urban renewal project financing. We believe that with the arrival of policy financing, assets on the table and the end of the market, AMC’s participation may be deeper, so as to win time and space for the rescue of the whole real estate industry, promote the gradual liquidation of the industry and achieve healthy and stable development.
From the perspective of sector investment, we believe that the follow-up market level “policies for cities”, “policies for time” and “policies for housing” will further accelerate the implementation, and the relief policies for real estate enterprises will continue to be promoted. While fulfilling the beta market, market confidence and the repair of both ends of industry supply and demand can be expected. We suggest focusing on four main lines:
1) the leading real estate enterprises of central state-owned enterprises with nationwide layout have been boosted by valuation in the last stage, but they will still enjoy the rising space brought by the beta Market: Poly Developments And Holdings Group Co.Ltd(600048) , Gemdale Corporation(600383) , China Merchants Shekou Industrial Zone Holdings Co.Ltd(001979) , Longhu group and China Resources Land; 2) Regional leading central state-owned enterprises and high-quality private enterprises, but the quality of cash flow and financial report is good: China Construction Development International, Yuexiu real estate, Midea real estate, Hangzhou Binjiang Real Estate Group Co.Ltd(002244) ; 3) After the policy becomes clearer, we can focus on the target of elastic reversal: Xuhui holding group, Seazen Holdings Co.Ltd(601155) , Jinke Property Group Co.Ltd(000656) , country garden; 4) At present, the real estate post cycle property sector with strong income determination and accelerated concentration, as well as the recent credit risk mitigation of related real estate enterprises and elastic reversal: Country Garden service, Xuhui Yongsheng service, poly property, Zhonghai property and xinchengyue service.
Risk tips:
The policy effect is less than expected; Real estate regulation continues to upgrade; Sales fell more than expected; Financing continued to tighten; The depth of AMC cooperation did not meet expectations, and the debt resolution speed of real estate enterprises did not meet expectations.
