why are the first batch of real estate companies that successfully restructured their debts restarting their restructuring plans?
2024-09-13
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the completion of debt restructuring does not mean that the crisis is over.
recently, market news showed that sunac china and longfor group are communicating with creditors and plan to propose a debt restructuring plan in the coming months, which may involve domestic bonds and loans.
r&f properties announced that the company is actively communicating with relevant creditors, paying attention to creditors' concerns, formulating and implementing solutions, and continuously promoting the resolution of overdue debts.
these three real estate companies are the first batch of companies to complete domestic debt restructuring. in the view of industry insiders, the re-initiation of debt restructuring reflects the continued decline in their cash flow. if the restructuring is successful, it will not only improve the cash flow situation, but also provide reference significance for the industry.
r&f, logan and sunac continue to promote debt optimization and restructuring
on september 11, r&f properties announced that as of june 30, 2024, the company's consolidated financial statements had overdue interest-bearing debts exceeding 10 million yuan, including an overdue balance of 8.454 billion yuan in bank loans, an overdue balance of 12.588 billion yuan in loans from non-bank financial institutions (trusts, financial leasing companies and other non-bank financial institutions), and an overdue balance of 6.57 billion yuan in other interest-bearing debts, all of which were overdue in principal and interest and had not been repaid when due.
r&f properties said that the company is actively communicating with relevant creditors, paying attention to their concerns, formulating and implementing solutions, and continuously promoting the resolution of overdue debts. the company attaches great importance to the rights and interests of creditors, and will continue to pay attention to its own debt situation, increase sales and asset disposal efforts, and reasonably plan repayment arrangements based on operating conditions.
as early as 2022, r&f properties took the lead in completing domestic and overseas debt restructuring. on november 10 of that year, r&f properties announced that the weighted average maturity of 8 domestic corporate bonds worth 13.5 billion yuan was extended from about 4 months to more than 3 years.
it's not just r&f properties. recently, market news showed that sunac china and longfor group are communicating with creditors and plan to propose debt restructuring plans in the coming months, which may involve domestic bonds and loans.
it is understood that the two real estate companies that had previously completed domestic debt restructuring may initiate debt restructuring again.
on december 6, 2022, after several voting extensions, the overall extension of longfor's domestic debt was approved by bond investors. the extension period of the extended bonds and abs (asset-backed securities) is 36 months, and the extension period of the unextended bonds and abs is 48 months, with a total amount of 22.36 billion yuan. the approval of longfor's debt extension proposal means that it will become the second real estate company after r&f to achieve an overall extension of its domestic debt.
following longfor, on january 3, 2023, sunac real estate group co., ltd. announced that the overall extension plan for domestic bonds totaling 16 billion yuan was voted through by the bondholders' meeting. after the extension plan is approved, it will effectively alleviate sunac's liquidity pressure in the next 3 to 4 years. sunac has also become the third real estate company to achieve an overall extension of domestic corporate bonds after r&f and longfor.
it is understood that the overall extension of the above-mentioned domestic bonds of sunac involves a total of 10 existing corporate bonds and supply chain abs, with a weighted average extension period of 3.51 years.
reason: downward sales and declining cash flow
r&f properties, longfor group and sunac china were the first real estate companies to achieve domestic debt restructuring. however, due to factors such as declining sales, their debt crisis has not been resolved.
according to the 2024 interim results announcement of sunac china, in view of the fact that the market recovery continues to be lower than expected, the group has extended the payment of principal and interest of domestic open market bonds originally due in june and september 2024 to the end of the year, while promoting comprehensive and long-term solutions.
at that time, its announcement showed that as of the end of august, the principal of sunac's overdue loans was 114.32 billion yuan, of which 53.96 billion yuan might be required to be repaid in advance.
sunac said that due to the continued downward trend in the real estate market, the adjustment depth and time have exceeded expectations. in the second half of 2024, it will continue to actively communicate with creditors on current debt problems and potential debt pressures, seek extension and overall resolution solutions, and strive to maintain the stability of the basic debt interface; at the same time, it will continue to focus on promoting the reduction of existing financing costs.
in july this year, longfor announced that as of july 10, the proposals to adjust the principal and interest repayment arrangements of 21 domestic corporate bonds and asset-backed special plans (abs) issued by its subsidiary shenzhen longfor holdings co., ltd. were all approved by the holders' meeting. according to this proposal, a 10-month grace period was added for each bond.
from this point of view, the completion of the first extension does not mean that the debt problem has been solved. as the market goes down, other debt problems may arise, and debt restructuring will need to be initiated again.
huang lichong, president of huisheng international capital, said that the downturn in the real estate market and the continued decline in cash flow of real estate companies may be the main reasons for the reorganization of real estate companies. against the backdrop of a sluggish real estate market, companies' sales revenue has decreased, leading to tight cash flow and difficulty in meeting the cash flow requirements of the original debt restructuring plan. in addition, if companies do not effectively improve their hematopoietic ability, that is, the ability to generate internal cash flow, after the first restructuring, they may find that they cannot complete the restructuring plan independently, and therefore need to propose a more relaxed plan to cope with the continued decline in cash flow.
according to statistics from china index academy, in august 2024, the sales of the top 100 real estate companies fell by 22.1% year-on-year and 2.43% month-on-month. from january to august, the total sales of the top 100 real estate companies was 2683.24 billion yuan, a year-on-year decrease of 38.5%, and the decline continued to narrow by 1.6 percentage points from the previous month.
zhang hongwei, founder of jingjian consulting, also believes that the real estate companies have started debt restructuring again because of the decline in sales proceeds, and the company's cash flow is still deteriorating. compared with the sales of real estate companies during the period of successful first debt restructuring, there is a significant decline. when the proceeds drop sharply, debt repayment becomes stressful, and a second debt restructuring negotiation must be conducted. there may be a third and fourth negotiation in the future.
take r&f properties as an example. from january to july 2024, it and its subsidiaries achieved a total sales revenue of approximately rmb 6.38 billion and a cumulative sales area of approximately 463,600 square meters. in the same period of 2023, r&f properties group's total sales revenue was approximately rmb 14.54 billion, a year-on-year decrease of 48.8%.
if the reorganization is successful again, it may provide reference for the industry
if there is another restructuring, what difficulties will there be compared with the previous one? huang lichong believes that creditors may have realized the continued downturn in the real estate market, so they may lower their expectations for recovering funds, which may make restructuring negotiations more complicated because it is necessary to balance the expectations of creditors and the company's debt repayment ability.
"the second debt restructuring negotiation is more difficult than the first. it is very important for real estate companies to obtain the understanding of creditors and win their trust with what conditions and efforts," said zhang hongwei.
of course, if the restructuring can be successful again, it will have a positive impact not only on the real estate company itself, but also on the industry.
huang lichong said that if the restructuring is successful again, it may reduce the company's debt burden, improve cash flow, and provide more financial flexibility for the company's operation and development. through effective debt restructuring, the company may restore a certain degree of credibility in the market, which will help future financing activities and business expansion. the restructuring process may also prompt the company to optimize its internal management and operations, improve efficiency and profitability.
huang lichong further said that if the above-mentioned real estate companies' restructuring is successful, it can also provide certain reference significance for other companies, especially in terms of strategic selection, creditor communication and legal enforcement. other companies facing similar difficulties may refer to the restructuring experience of the above-mentioned companies in order to succeed in their own debt restructuring.
beijing news reporter duan wenping
edited by yang juanjuan and proofread by yang li
