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image source: tuchong creative

wanda has waited for the financial sponsor, but r&f’s financial sponsor wants to “cut ties” quickly.

recently, r&f properties (02777.hk) announced that 68 hotels and 1 office building indirectly held in china by its wholly-owned subsidiary zhao xi co., ltd. (hereinafter referred to as "zhao xi") were taken over by institutional personnel appointed by the guarantee agent.

also under takeover were the shares of yu yi co., ltd. (hereinafter referred to as "yu yi") held by r&f properties (hong kong) co., ltd. (hereinafter referred to as "r&f hong kong") and the shares of zhao xi held by yu yi. among them, zhao xi is a wholly-owned subsidiary of yu yi, yu yi is a wholly-owned subsidiary of r&f hong kong, and r&f hong kong is a wholly-owned subsidiary of r&f properties.

the cause of the incident was an outstanding offshore debt of us$614 million, and one of the collaterals of this debt was the 68 hotels and one office building that were taken over this time.

the hotel assets that were taken over this time can be traced back to a "deal of the century".

on july 19, 2017, at the wanda sofitel hotel in beijing, wanda founder wang jianlin, sunac founder sun hongbin, and r&f properties founder li silian toasted with zhang li to celebrate the largest deal in chinese real estate history.

as the white knight, r&f properties snatched 73 hotels from wanda group at a cost of 18.955 billion yuan, becoming the world's largest luxury hotel owner. since then, li silian has repeatedly stated that this is a good deal and insisted that "it was not expensive."

seven years later, these assets were in turmoil again. temasek fell out with r&f properties because of the above debts.

seatown private credit master fund (hereinafter referred to as "seatown"), a private credit sovereign fund under singapore's government investment institution temasek, is one of the creditors. in july and august this year, seatown filed liquidation petitions against zhaoxi and r&f hong kong in the hong kong high court.

in 2022, r&f properties took the lead in completing the overall restructuring of domestic and overseas debts, but now it is once again facing a financial crisis.

68 hotels taken over after temasek fell out

on july 8, seatown filed a liquidation petition against zhaoxi in the hong kong high court because a loan totaling us$614 million, including principal and interest payable, had not been repaid.

the financing agreement for this debt was signed on january 13, 2023. tianyancha shows that zhaoxi holds 100% of the shares of guangzhou zhaoxi investment co., ltd. (hereinafter referred to as "guangzhou zhaoxi"), and guangzhou zhaoxi has invested in 73 hotel management companies. these companies have many significant characteristics. they were all established in october 2017 and are 100% controlled by guangzhou zhaoxi. among them, many companies wholly own other hotel management companies, and the shareholders of other hotel management companies were once dalian wanda commercial properties co., ltd.

r&f properties is very dissatisfied with seatown's liquidation petition. one of the reasons is that seatown is "only one of the lenders of the loan and only holds 18% of the outstanding principal amount of the loan", and the r&f properties board of directors believes that seatown's petition does not represent the interests of zhaoxi and other stakeholders of r&f properties.

"the loan is sufficiently collateralized and secured creditors can exercise their rights to enforce the collateral rather than apply for liquidation of the subsidiary," the board of directors of r&f properties believes that any such attempt to apply for liquidation would damage value "and reduce the recoverable recoveries of creditors."

enforcing collateral and filing a winding-up petition with the court are two different ways of recovering debts. enforcing collateral usually means that the creditor directly disposes of the collateral to recover the debt. this method directly targets specific assets and is usually applicable to debts with clear collateral; while filing a winding-up petition with the court is to request the court to liquidate the debtor company, which usually involves the company's overall assets and liabilities.

huang lichong, president of huisheng international capital, told times finance that filing a liquidation petition against a debtor company is a more thorough solution that may lead to the dissolution of the company.

huang lichong analyzed that the reason why seatown chose liquidation "may be because seatown believes that liquidation can better protect its overall interests, or because the value of the collateral is not enough to cover the debt, or because liquidation can solve other potential problems of the company, such as poor operation or financial opacity."

in the announcement, r&f properties revealed that the company has been actively communicating with seatown and will continue to communicate to strive for a "friendly solution" between the two parties.

however, the communication was obviously unsuccessful. on august 19, seatown once again filed a winding-up petition in the hong kong high court. this time, seatown's target was r&f hong kong, the parent company of zhaoxi, which was also one of the guarantors of the debt.

faced with financial difficulties, r&f properties seems unable to withstand seatown or prevent further actions from all creditors.

on september 3, the debt's guarantor, serica agency limited, appointed frank forensic and corporate recovery limited to take over the assets secured by the financing agreement for the guarantor, including but not limited to the yu yi shares held by r&f hong kong, the zhao xi shares held by yu yi and the assets of zhao xi.

according to financial services company tmf group, when a lender uses collateral as security for a loan, it generally appoints a security agent or agent to enforce its rights when the borrower breaches the loan or bond contract. therefore, the security agent often represents the interests of all creditors.

however, huang lichong pointed out that the security agent's appointment of an agency to take over the collateral of r&f properties' debt may be part of a series of actions to submit a liquidation petition against the borrowing company, or it may be an action independent of the liquidation petition, depending on the specific terms of the loan agreement and the negotiations between the lenders.

two years after completing debt restructuring, r&f faces crisis again

whether liquidation or takeover, r&f properties is gradually losing the initiative over 68 hotels and 1 office building, which is a result that r&f properties does not want to see.

"over the past year, contract sales have dropped significantly, coupled with the lack of repayment ability, accelerating debt maturity. these abnormal conditions have led to more uncertainty in cash flow, and it is impossible to carry out strategic planning and manage liquidity to fulfill debt repayment obligations." in the 2024 interim report released at the end of august, r&f properties admitted that the company and its peers will continue to face financial constraints and asset liquidity issues.

hotels are one of r&f properties' "saviors". "faced with difficult operating conditions, the group mainly relies on cash flow from the sales of recently completed properties and recurring investment properties," r&f properties said. in addition to cash flow from contracted sales of completed properties, "another important cash flow comes from investment properties that can generate operating and rental income, such as retail malls and hotels." as of june 30, r&f properties owned 90 hotels.

"the investment asset portfolio can provide emergency and stable cash flow and is not easily affected by market fluctuations. in addition, the central government has been encouraging local consumption and local tourism, which has promoted the growth of the group's hotel and tourism assets."

the interim report shows that in the first half of the year, r&f properties achieved contracted sales revenue of approximately 5.6 billion yuan, a year-on-year decrease of 58.64%; and achieved a turnover of 14.211 billion yuan, a year-on-year decrease of 15%. among them, the turnover from property development was 10.484 billion yuan, a year-on-year decrease of 15%; the rental income from investment properties was 425 million yuan, a slight increase of 2% year-on-year; and the hotel operation turnover was 2.762 billion yuan, a year-on-year decrease of 7%.

huang lichong believes that as an experienced investor, temasek is capable of conducting in-depth market analysis and risk assessment, thereby finding investment opportunities amid market uncertainties. this may also be the reason why seatown chose hotel assets as collateral. "although the current real estate situation in the mainland is not good, they may believe that hotel assets have long-term value, or believe that these assets can bring higher returns when the market recovers."

times finance noticed that in addition to investing in hotel assets under r&f, temasek also invested in wanda.

the hong kong stock exchange's equity disclosure document shows that temasek held 65.04% of wanda hotel development's shares on january 11, 2023, equivalent to more than 3.055 billion shares; the next day, wanda hotel development announced that wanda overseas, the controlling shareholder ultimately beneficially owned by wang jianlin, has pledged more than 3.055 billion shares of the company's common stock to the lender as collateral for the loan financing provided.

according to a report by jiemian news in january last year, the lender was a company under temasek, which provided a loan to wanda culture holding co. limited and thereby obtained shares in wanda hotel development. as of december 31, 2022, wanda hotel development has 122 hotels with a total of more than 28,600 rooms, and another 232 hotels that have been signed to manage and are under development but have not yet opened.

as a relatively high-quality asset within the r&f properties system, once the control of the hotel falls into others' hands, it will undoubtedly make the already stressed financial situation of r&f properties even worse.

in 2022, r&f properties took the lead in completing the overall restructuring of domestic and overseas debts. in july of the same year, yilue, a subsidiary of r&f properties, announced that 10 us dollar notes were merged into 3 (hereinafter referred to as "yilue notes") and extended for 3-4 years. the total amount of the notes was nearly us$4.944 billion. at that time, r&f also took out the r&f princess bay project in johor bahru, malaysia and the london one project (i.e., one nine elms project) in london, uk as credit enhancement. this extension of the us dollar notes was also called by the market as the largest debt restructuring case of asian real estate companies.

now, it is in financial trouble again. when r&f properties' hotel assets were involved in debt default, the three bonds after the extension were also on the verge of risk. on august 11, r&f properties issued an announcement that there were still $4.527 billion of yilue notes that had not been repaid, and the total interest of $147 million on the notes was to be paid on july 11, but after a month of grace period, r&f properties did not pay due to "cash flow pressure".

in may this year, r&f properties sold the one nine elms project, repaid the project loan, and cancelled some of the yilue notes. r&f properties said that the company "successfully reduced its debt scale". after temasek filed a petition for liquidation, r&f, which had one foot "on the shore", was pulled back to the shore, and a new round of challenges has just begun.