many real estate companies plan to postpone repayment of bonds, and seek new ways for debt restructuring
2024-09-25
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there have been many new changes in the debt restructuring of troubled real estate companies recently, which makes some people happy and some worried.
in late september, the overseas debt restructuring plans of yuzhou and kaisa group successively won the support of most creditors, which brought them one step closer to solving the overseas debt problem. however, more real estate companies are facing the need to extend their debts again.
recently, a number of real estate companies that have completed debt restructuring or extension, including r&f, sunac, country garden and other real estate companies, have begun to promote a new round of debt extension, and even restart their restructuring plans.
some real estate developers said that with declining sales, financing difficulties, and continued liquidity pressure, billions of yuan in interest have become a "huge sum". even if the debt restructuring is completed, the companies still face considerable challenges. the industry said that promoting a new round of debt restructuring or extension may increase the operating pressure of real estate developers, but if the extension is successful again, it can also ease the debt repayment pressure in the short term.
it is worth mentioning that the regulators are also working hard to provide more support to the industry at the policy level. in addition to lowering the interest rates on existing mortgages and reducing the down payment ratio for second homes, they will also extend the validity period of the two phased policies, the "16 financial measures" and commercial property loans, to the end of 2026.
a third-party research institution said that the extension of the two real estate financial policies will help guide financial institutions to provide sustained and stable financial support to real estate companies, help high-quality real estate companies to revitalize their existing assets and alleviate financial pressure, thereby promoting the stable development of the real estate market.
restarting debt restructuring
recently, the corporate bonds "h16 r&f 5", "hi8 r&f 8" and "h18 r&f 1", which had been suspended for about half a month, resumed trading.
the resumption of trading announcement showed that r&f properties was originally supposed to pay part of the interest on the above three bonds on september 16, but in view of its financial and operating conditions, the grace period for this part of the interest was extended by another 6 months to march 2025.
this grace period actually provides r&f properties and bondholders with the necessary time to communicate and negotiate a feasible new debt restructuring plan.
in fact, r&f properties has completed domestic and overseas debt restructuring in 2022, but recently there have been reports of debt defaults again. in mid-august, the interest on more than us$4.5 billion of notes issued by r&f properties' subsidiaries matured and was not paid.
to resolve this issue, r&f said it is discussing solutions with holders and considering all possible actions, including but not limited to formulating an overall debt management plan for overseas debts.
a similar situation also happened to country garden. in september 2023, country garden completed the overall extension of 9 domestic bonds in one go, involving an amount of about 15 billion yuan. however, as of early september this year, country garden postponed the installment payment of the above domestic corporate bonds for another 6 months, and the repayment time was adjusted to march 2025.
in response, country garden stated that due to the overall pressure on industry sales and multiple factors such as restricted funds allocation, it has not yet been able to raise sufficient funds to repay the principal and interest of corporate bonds. next, it will fully communicate with investors during the grace period and comprehensively formulate the next package plan.
under huge liquidity pressure, real estate companies are trying to save every penny. take sunac as an example. the company completed the overall extension of domestic bonds in early 2023, totaling 10 bonds with a total scale of about 16 billion yuan. according to the original plan, for 4 of the bonds, sunac should pay part of the interest in june this year and 5% of the first installment of the principal in september.
however, as the repayment deadline approached, sunac chose to extend the repayment period again, adjusting the principal and interest repayment time to december. the outstanding scale of the four bonds is about 9.5 billion yuan. roughly speaking, the total principal and interest that sunac originally needed to pay was only about 500 million yuan.
the debt restructuring plan of fujian-based real estate developer zhengrong real estate had originally received support from over 75% of creditors, and was only one step away from completing the debt restructuring. however, the company chose to proactively suspend the hearing and seek a new restructuring plan.
an insider of a real estate company that is still promoting debt restructuring told the first financial reporter that for many debt restructuring plans that have been approved, even if they can be implemented with some effort, but may cause serious consequences, the company will probably take advantage of the current situation to ask for a renegotiation.
however, the further extension of debts has both advantages and disadvantages for real estate companies. liu shui, director of corporate research at china index academy, believes that promoting a new round of debt restructuring or extension will increase the operating pressure of real estate companies, requiring more time and energy to negotiate with creditors, hindering the resumption of normal operations of real estate companies and being detrimental to their business activities. on the other hand, if the debt can be extended again, it can also ease the pressure of debt repayment in the short term.
cash flow needs to be eased
what has caused real estate developers to fall into a debt vortex again is the real estate market, which is still in deep adjustment.
r&f properties clearly mentioned in its 2024 interim report that "contracted sales have dropped significantly over the past year, coupled with a lack of repayment capacity, which has accelerated the maturity of debts. these abnormal conditions have led to more uncertainty in cash flow, and it is impossible to carry out strategic planning and manage working capital to fulfill debt repayment obligations."
since 2024, the overall real estate market is still in a weak consolidation stage. in the first eight months, real estate sales fell by more than 36% year-on-year, and nearly 90% of the top 100 real estate companies saw a year-on-year decrease in cumulative performance. sunac also mentioned that the depth and time of the real estate market adjustment exceeded expectations.
third-party research institution cric believes that homebuyers' confidence and expectations were at low levels in the first half of the year, the capital market lacked confidence in real estate companies, and the amount of net financing fell into the negative range for a long time.
according to statistics, in the first eight months of this year, the total amount of financing of 65 typical real estate companies was 309.477 billion yuan, a year-on-year decrease of 32.2%, and most of them were domestic bond issuances promoted by central state-owned enterprises. overall, the funding pressure faced by real estate companies is tightening.
against the backdrop of continued market weakness, reduced sales proceeds and overall cooling of financing, real estate companies' cash on hand has been greatly reduced, and the financial pressure at the group level is enormous.
according to cric statistics, the cash holdings of 50 sample real estate companies experienced negative growth for the first time in 2021, with a drop of more than 10% that year, and then maintained a downward trend year by year, with a drop of more than 22% and 14% in 2022 and 2023 respectively, and a further decrease of 9.6% in the first half of 2024. 86% of real estate companies have less cash than at the end of 2023.
during the same period, the total interest-bearing liabilities of the sample real estate companies only slightly decreased by 0.65%, while the short-term interest-bearing liabilities increased by 1.87%. according to cric's calculations, the adjusted non-restricted cash to short-term debt ratio has slightly decreased compared with the beginning of the year, reaching 0.48, and the short-term pressure on real estate companies is still relatively large.
"looking at the debt restructuring terms for 2023 at this time, it is too optimistic," said the insider of the real estate company. liu shui said that as the deep adjustment of the real estate market lasts longer, the liquidity of real estate companies has not improved significantly, and more real estate companies will extend their debts again.
with previous experience, will this round of negotiations be easier?
a person from a real estate company that is promoting the extension of domestic debts told the reporter that there are multiple factors that influence whether the extension is easier to negotiate. "if the extension is with similar terms to the previous bonds, it will be easier to pass. at the same time, bonds with concentrated creditors will be easier to negotiate, but if the holders are more dispersed, it will be difficult to negotiate."
"creditors now have a better understanding of the mainland real estate market and the difficulties faced by enterprises," the real estate company insider said, predicting that the difficulty of negotiating new debt restructuring will be reduced, "but the specific debt reduction terms still need to be communicated and negotiated."
yu xiaoyu, research director of e-house research institute, also said that the acceptance of creditors is also increasing, but the difficulty of the extension lies in how to convince investors that the company has the ability to repay the money. the market is not ideal now, and the real estate companies in trouble have not acquired new land for a long time. financing is also blocked. why should creditors trust the company? "it is estimated that the probability is that the two sides will continue to work out and finally reach an agreement by exchanging time for space."
it is worth mentioning that the regulatory authorities are also working hard to provide more support to real estate companies from the policy level to ease the liquidity pressure of enterprises. on september 24, the central bank announced the extension of the deadlines of two real estate financial policy documents, extending the validity period of the two phased policies of "financial 16 measures" and commercial property loans from december 31, 2024 to december 31, 2026.
cric pointed out that the extension of the "16 financial measures" will help guide financial institutions to provide continuous and stable financial support to real estate developers, alleviate the financial pressure of real estate companies, and better help achieve the goal of ensuring the delivery of buildings and promote the stable development of the real estate market. the extension of the support policy for operating property loans will help high-quality real estate companies to revitalize their existing assets, improve liquidity through operating property loans, and alleviate debt repayment pressure.
in addition, the urban real estate financing coordination mechanism is also progressing steadily. so far, commercial banks have approved more than 5,700 "white list" projects, with a financing amount of 1.43 trillion yuan, supporting the timely delivery of more than 4 million housing units.
a person from a real estate company in trouble revealed that one of the main tasks at present is to revitalize the project in order to seek more capital inflow. in addition to negotiating with loan financial institutions, general contractors and other creditors to restart the project, "white list is also a way."
(this article comes from china business network)
