Due to liquidity shortage, Liu Luanxiong sold London property for HK$1.26 billion
2024-08-16
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I didn't make any money, but I reduced my debt.
China Real Estate News reporter Zeng Dongmei丨Guangzhou reportLiquidity pressure is beginning to approach Hong Kong real estate developers.On August 15, Chinese Estates Holdings Limited (hereinafter referred to as "Chinese Estates", 00127.HK) announced that it would sell the equity and debt of a subsidiary for approximately HK$1.26 billion. The subsidiary owns the office property 14 St George Street in London, UK.Chinese Estates said it expects to record a net loss of about HK$100 million from the transaction, but the company's total liabilities will also be reduced by about HK$238 million.The day before, the company released its interim results showing that in the first half of this year, it recorded a net loss attributable to shareholders of approximately HK$422 million, and current liabilities exceeded current assets by approximately HK$1.1 billion. "The management closely monitors the financial performance and liquidity position of the Group."Liu Luanxiong, the actual controller of Chinese Estates Holdings, is a Hong Kong capital tycoon who was once famous for his heavy investments in China Evergrande, Kaisa Group, and Zhongliang Holdings. However, as these real estate companies have been in trouble one after another, the cash flow of Chinese Estates Holdings has also begun to face severe challenges.━━━━
Selling UK property for cashIt is understood that 14 St George Street is a 4-story high-end office building located in Mayfair, West London. It was designed by the famous architect Eric Parry and has a construction area of about 50,845 square feet. Market news shows that the project was acquired by Chinese Estates in 2016 for 121.7 million pounds. There are currently two tenants, and the occupancy rate in the first half of this year was about 81.73%. In June, Chinese Estates put 14 St George Street up for sale at an asking price of 135 million pounds.According to the announcement, the final transaction price of the property is about 125 million pounds, and the buyer will also bear the debts of the project company. In 2023, the project company recorded a revenue of about 40 million Hong Kong dollars and a profit after tax of 32 million Hong Kong dollars.The UK plays an important role in Chinese Estates' investment layout. As of the end of June this year, the company's net investment in the UK was HK$5.64 billion, accounting for 41% of its total equity.In addition to 14 St George Street, Chinese Estates also owns three properties in London. 120 Fleet Street consists of a freehold office building called River Court and the Daily Express Building, which is listed as a two-star historic building. River Court will be rebuilt into a 21-storey mixed-use building with two basements, which is expected to provide approximately 540,000 square feet of office space and approximately 18,600 square feet of retail space.61-67 Oxford Street and 11-14 Soho Street are also mixed-use buildings with a total area of 55,000 square feet, providing retail, office and residential units. The average occupancy rate in the first half of this year was approximately 99.8%.The total net indoor area of 11 and 12 St James's Square and 14 to 17 Ormond Yard is approximately 82,000 square feet, and the average occupancy rate in the first half of the year was only 14.2%.As of the end of June, the book value of these investment properties was approximately GBP 712 million, with a net loss of HKD 45 million during the period and a GBP exchange loss of HKD 52 million.━━━━
Cash cannot cover short-term debtIn the announcement, Chinese Estates Holdings analyzed the impact of the transaction on the balance sheet, including reduced rental income, lower financial expenses, and a decrease in the debt-to-asset ratio.Reducing debt is indeed a top priority for Chinese Estates. In the first half of this year, the company achieved revenue of HK$195 million, a year-on-year decrease of 27.9%, and the parent company's share of losses was HK$422 million, turning from profit to loss year-on-year. As of the end of June, its current assets were about HK$1.58 billion, while current liabilities reached HK$2.68 billion. Of the total debt of HK$4.11 billion, HK$4.05 billion was bank loans, of which HK$2.16 billion of bank loans will mature within one year, while its cash and bank deposits were only HK$840 million.Chinese Estates stressed that it is not aware of any intention of major banks to withdraw credit lines or require early repayment of debts, and believes that the existing bank credit lines can be renewed or rolled over when they expire. The company will have sufficient financial resources to repay matured debts and continue to operate.The pressure of debt repayment was already reflected in the previous year. In the 2023 performance announcement, Chinese Estates began to disclose the risk factors that affect its continued operation, that is, current liabilities exceeded current assets by about HK$960 million. In the first half of this year, the operating loss was added.Investing in real estate stocks and US dollar bonds of listed real estate companies used to be the main source of income and profit for Chinese Estates. In 2020, Chinese Estates' revenue increased by 132% year-on-year to HK$3.041 billion, of which HK$1.967 billion was dividend income from China Evergrande. In 2021, due to the debt crisis of China Evergrande, Chinese Estates' revenue fell to HK$1.3 billion, a year-on-year decrease of 57.3%, and the loss attributable to shareholders was as high as HK$3.515 billion.Chinese Estates Holdings disclosed in 2021 that the cost of purchasing 860 million shares of China Evergrande was about HK$13.596 billion, and it was expected to cash out only HK$2.26 billion after clearing the position, with a loss of more than HK$11 billion. In that year, the company also sold Kaisa's US dollar notes totaling US$255 million, and recorded a realized loss of HK$1.355 billion for the whole year.Even though it has significantly reduced its holdings, Chinese Estates still recorded losses in the first half of this year. Among them, the net loss recognized from securities investment and treasury products was HK$31 million, the realized loss of bonds was HK$3 million, and the unrealized loss of listed equity investments, bonds and derivative financial instruments was HK$40 million.At the end of 2023, Liu Luanxiong held a press conference to specifically respond to the issue of Chinese Estates' investment in real estate stocks. Liu Luanxiong revealed that Gambi and her sister had suggested that he sell his investment in Evergrande a long time ago, but he felt that selling Evergrande shares would aggravate its negative impact, so he did not adopt it. Regarding Evergrande's investment, he said that he was not angry with Xu Jiayin, and he would not be angry about the loss.Editorial Board Member on Duty: Li HongmeiEditors: Li Hongmei and Liu Ya
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