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Recently, market news said that the Hong Kong luxury residence "The Grand" jointly built by Logan Properties and KWG Development has successfully completed refinancing, with a total fundraising amount of US$1.05 billion (approximately RMB 7.5 billion).

The "Kaiyue" project is a microcosm of the boom in real estate investment by mainland real estate companies in Hong Kong. Since 2022, Longfor and KWG have defaulted on their debts one after another; in May this year, Longfor Group and KWG entrusted JPMorgan Chase as the exclusive underwriter to arrange refinancing for Kaiyue's loan.

It is worth noting that at present, the overseas debt financing channels of real estate companies, especially private real estate companies, have not yet been restored. Only a few high-quality companies have the ability to issue overseas bonds, and the overall recovery will take some time.

Overseas refinancing of Kaiyue project

In 2017, KWG and Logan jointly won the highest-priced residential land in Hong Kong, the "Corniche" project, for HK$16.856 billion. In Hong Kong, where every inch of land is valuable, the floor price of the "Corniche" project is about HK$22,118 per square foot (about HK$240,000 per square meter).

The property will be first sold to the public in January 2023, with a total of only 295 residential units on sale. The unit design has a usable area of ​​approximately 1,340-9,663 square feet (approximately 124-898 square meters). The design and decoration materials are of top standard. Such a large-scale seafront luxury home is rare in Hong Kong.

Public information shows that Longfor and KWG once used the "The Corniche" project jointly developed by the two parties as collateral to borrow HK$10.2 billion from a consortium of banks including HSBC and Standard Chartered for project development. The financing is divided into a HK$6.72 billion term loan and a HK$3.855 billion revolving credit, with a term of 5 years and an expiration date of August 25, 2024.

Since 2022, Longfor and KWG have defaulted on their debts, and the HK$10.2 billion mortgage loan has also been included in the scope of offshore debt restructuring. Cheung Kong Group and US asset management company Ares Management (hereinafter referred to as "Ares") have both been interested in acquiring the debt of the project.

In May this year, Longfor Group and KWG Group commissioned JPMorgan Chase as the exclusive underwriter to arrange refinancing for Kaiyue’s loan. In the end, according to market news, institutions including Deutsche Bank and Ice Capital provided a loan of US$1.05 billion with an annual interest rate of 13% and a term of 30 months, with two six-month extension options.

Liu Shui, director of corporate research at China Index Academy, analyzed that "combined with previous market news, this dollar bond is a private placement bond, which is used to replace previous loans and support the subsequent work of the project, and the capital cost is relatively high. In addition, the source of funds for the repayment of this bond is the Hong Kong luxury home Kaiyue project. The Kaiyue project is currently selling well and has relatively strong cash flow stability." On June 27, Longfor Group publicly stated that the Kaiyue project has recorded large transactions in succession. In the three months since Hong Kong fully withdrew its "tough measures", the project has sold 22 sea view homes with a total transaction volume of more than 1,000 feet, with a total transaction volume of more than HK$1.25 billion.

Overseas bond issuance is still open only to a few high-quality real estate companies

The Kaiyue project is a key part of the offshore debt restructuring plan of Longfor Group and KWG. As of mid-July, Longfor Group has completed the extension of 21 domestic corporate bonds and asset-backed special plans (ABS), and the offshore debt restructuring plan has also been supported by noteholders with more than 92% of the total outstanding principal. KWG is still discussing the debt restructuring plan with creditors.

Affected by the domestic and international environment, the overall financing situation of the real estate industry is still grim at this stage, and the overseas debt financing channels of real estate companies, especially private real estate companies, have not yet been restored. According to China Index data, Yuexiu Real Estate also issued an overseas green priority note of 1.69 billion yuan in July. The overseas debt channel is open to a few high-quality real estate companies. Yuexiu, Minmetals and other real estate companies have issued overseas bonds in 2024. The degree of smooth overseas financing of real estate companies still needs to be observed in the future.

From January to July, the total overseas bond issuance was only RMB 6.7 billion, down 39.5% year-on-year. In terms of individual months, no new bonds were issued in May, and only a few high-quality companies were able to issue overseas bonds in the remaining months. Overseas bond financing channels are extremely unstable and almost closed.

Liu Shui, director of corporate research at China Index Academy, said that since the beginning of this year, real estate companies such as Zhongliang and Aoyuan have completed debt restructuring and successfully relieved short-term debt repayment pressure. However, there are many real estate companies that have not yet completed overseas debt restructuring, which has accumulated great debt repayment pressure. In the short term, the sales market is still bottoming out and recovering, and the risk of overseas debt has not been cleared. Overseas debt issuance will still be open to a few high-quality real estate companies, and the overall recovery will take some time.

Written by: Nanduwan Finance reporter Wang Yanling