Another large state-owned enterprise in Tianjin, Tianfan Group, has been exposed to a debt crisis of about 200 billion yuan. (provided by the interviewee)
After Bohai Steel and Tianjin Property’s debt thunderstorm, another large state-owned enterprise in Tianjin, Tianjin real estate Group Limited (Tianfang Group), has been exposed to a debt crisis of about 200 billion yuan. Why did Tianfang Group come to this point? Why did these huge state-owned enterprises eventually come to the point of having to collapse? Zheng Yi (a pseudonym), an investment banker familiar with Tianfang’s operations, revealed the real insider story to the Epoch Times.
“The thunderstorm of Tianfang Group did not happen overnight, just like the thunderstorm of Bohai Iron and Steel Group and Property Group, two of the world’s top 500 groups, as it happened. These 3 groups financing scale combined 700 billion or so, the financial crisis that year the national bailout only 4 trillion. In other words, these 3 groups are the most representative and a microcosm, in fact, most of the other state-owned enterprises have also been mined, just not made public. It’s a rotten system of corrupt governance, and the CCP has gone over the top.” Zheng Yi told the Epoch Times.
The History of Tianfang Group
Tianfang Group was first established as the “government unified construction and resettlement office” after the Tangshan earthquake in 1976. In 1988, it was re-established as “Tianjin Real Estate Development and Operation Group”.
In 1993, Tianfang Group underwent a shareholding reform, and the good assets divested were injected into “Tianjin Real Estate Development Group Co.
In 2014, “Tianfang Group” merged with “Tianjin Real Estate Trust Group Co. Ltd.” (the current “Tianfang Group”). From the above, it is clear that “Tianfang Group” is the parent company of “Tianfang Development”, the largest holding company and absolutely controls “Tianfang Development”. Meanwhile, Tianfang Group is also the controlling shareholder of Fangxin Group.
“Tianfang Group has always been a bureau-level unit, originally under the jurisdiction of the Construction Committee, but after the establishment of the State-owned Assets Supervision and Administration Commission of Tianjin Municipal People’s Government (SASAC), it was under the jurisdiction of SASAC, and the actual controller was Tianjin SASAC. It is worth mentioning that many people equate Tianfang Development with Tianfang Group, but in fact, Tianfang Development only accounts for about 14% of Tianfang Group’s total assets in the consolidated statement, and the bulk of it is all in Tianfang Group.” Zheng Yi said.
Tianfang Group defaulted on its debt
In 2012, Tianfang Group had 57.2 billion yuan of assets in its consolidated statement. in 2014, Tianfang Group started to raise large-scale debt in the capital market. at the end of 2017, total assets reached 213 billion yuan.
According to public information, as of September 2020, Tianfang Group’s 4.5 billion PPN bonds issued in 2015 have materially defaulted; its 1.8 billion bonds issued in February 2016, 8.2 billion bonds issued in March, 700 million bonds issued in April and 2 billion bonds issued in September, totaling 12.7 billion, will mature this year (2021), and there is a high possibility that Tianfang will continue to default.
In addition, Tianfang will face further capital pressure as the redemption period for employee fund raising is from March to September every year and the amount involved is estimated to be around 4 billion.
A securities research report issued by Guotai Junan Securities in November last year said that according to the 2018 interim report, Tianfang Group had a gearing ratio of 97.36% and maintained a net profit loss for three consecutive years, with net profits of -398 million yuan, -2.206 billion yuan and -970 million yuan in 2016, 2017 and the first half of 2018, respectively.
Nine reasons leading to the debt crisis of Tianfang Group
First, Tianfang Group was originally composed of non-performing assets, and the capital chain was inherently broken
As mentioned earlier, Tianfang Group was composed of non-performing assets divested after the asset allocation and restructuring when Tianfang Development was listed, and its paid-in capital was only 540.8 million before the merger with Housing Trust Group in 2014, and its registered capital was 2 billion after the merger with Housing Trust.
“But half of the $2 billion was capitalization of capital surplus (i.e., no real capital injection), so Tianfang Group, as the parent, has been heavily indebted since its birth, and its capital chain has never been loose.” Zheng Yi said, in other words, the biggest problem that accompanied Tianfang Group for 40 years was the capital problem, “the beginning of the days to rely on the remaining assets to offset the accounts, even payroll became a problem, and loans were even more difficult.”
Second, it was dragged to death by the debt in the project
As Tianfang Development is a listed company, the parent company Tianfang Group cannot compete with the listed company in the same industry, and it has no capital to buy land itself, so the company has to survive to eat, so it has to find another way to choose the two major sectors of land level development, i.e. land preparation business and housing construction.
Since 2006, Tianfang Group has been involved in the land consolidation business in the surrounding districts and counties of Tianjin (including the land in Gangdong New Town in Dagang District, Baodi’s old city transformation, the area around Chaobai Lake, Hangu’s east expansion, Tuanbo Lake New Town, etc.), with a total investment of about 22.8 billion yuan in 10 years, finishing about 27,000 mu of land, but only about 16,000 mu of land was available for sale, and by the end of 2017, a total of about 0.7 million mu was sold, with a total The return is about 6 billion yuan, and the income also includes the part of the land that Tianfang paid for itself to organize itself.
Zheng Yi said that the construction cost of land finishing is high and requires a lot of investment, and to recover the investment, it can only be done through land concessions, “but land concessions are planned to match the supply demand, and when the land can be sold to communicate with the district and county governments, so the land concessions payback period is long, and the project takes up a lot of money, and the so-called profit has long been eaten up by interest .”
“In addition, the land preparation of the cooked land belongs to the land storage (commonly known as “white certificate”), can not be mortgage loans, can only accept a large number of high interest rate non-standard loans, the financing cost at that time at least 12% annualized.
In addition, these lands are in the remote areas of Tianjin, there is no market demand at all, and they cannot be sold. So, looking at the land preparation business to make money, in fact, not only could not collect the money back, but also had to keep repaying the loan interest, it was a bottomless black hole, Tianfang was dragged to death alive by this model, it was one of the reasons that led to Tianfang’s collapse.”
Tianfang Group built about 70% of Tianjin’s price-restricted commercial housing, “such housing because the construction period is too long, but also to follow the government’s housing supply plan, plus the sale price itself requires 20% lower than the surrounding prices, and when other prices rise too fast when the price of price-restricted housing and can not change, the final selling price than the market price at the time was about 40% lower, and All the funds are resolved by the enterprise itself, the interest alone will drag down the whole enterprise.” Zheng Yi said.
Third, municipal projects are too heavy, increasing the debt burden of enterprises
Zheng Yi said, in the eyes of the capital side Tianfang belongs to the government platform, but in the eyes of the government, Tianfang is an enterprise, can be counted as a government platform only the city investment, “its purpose is really something happened, really do not care, a push, but the government let do the same thing can not be less, is doing non-market economy work, something happened and was dealt with according to market rules, typical of playing a rogue. “
The most typical example is that the most important project of the whole Tianjin Taian Road five compounds project. “The old Tianjin Municipal Government, the National People’s Congress, the CPPCC offices all in Taian Road, around 2009, the then Tianjin Municipal Party Secretary Zhang Gaoli wanted to build a new Tianjin Municipal Government office building on the old Tianjin Hotel site, but did not dare to blatantly use taxpayers’ money to build buildings, so let Tianfang out of the mountain.”
“And in return, the government exchanged the old for the new and compensated the old Taian Road site to Tianfang so that the government would not have to spend any money. The total investment of the project is more than 10 billion, and Tianfang wants to develop it, where will the money come from? It can only apply for a loan with the land and buildings of the Taian Road site as the ‘subject matter’, and the loan can only be repaid after the whole project is developed and sold, and the funds are returned, but the time between the development of the old and new projects is as long as 10 years, and the large amount of interest eats into the profits.”
“Moreover, a large number of commercial buildings in the project cannot be sold so far, plus the various restriction policies during this period, time cost, capital cost, construction cost, labor and building materials Zhang price, etc., the final actual cost must exceed the total planned investment, can this capital chain be continuous? This project is also a project that has a hundred harms but no benefit for Tianfan.”
Zheng Yi said, to this day, the property rights of the new and old city hall building plots are under the name of Tianfang Group, “so it is hard to understand how the government can write off the responsibility when Tianfang is at risk.” Moreover, this laborious new government construction project has also triggered protests from the surrounding people, “especially the discontent of some of the surrounding Red Generation figures, so the people who wanted to demolish and relocate the residential buildings on the south side had to compromise in the end. This is also the reason why the southward gate of Tianjin Municipal Government had to be opened in the hutong.”
Zheng Yi said that there are many more such projects with stable losses and top thunder, “including the construction of the image project cultural center (museum, art museum, library, grand theater) on behalf of the government, as well as municipal projects such as the Chifeng Bridge and Guotai Bridge, which not only consume a lot of manpower but also hardly make any money.”
“Also, the sky house to help the government refurbish and renovate the Tianjin Cadre Club and Beidaihe Qishilin Hotel, spending nearly 200 million in capital, but the property rights to the Organ Affairs Administration, only to give 15 years of operating rights as compensation, the 2 projects operating performance loss year after year, by no means to recover the principal.”
Zheng Yi said, in fact, many municipal projects are the city leaders to establish political performance and get the benefits of the project.
Fourth, the government’s abuse and corruption aggravate Tianfan’s debt crisis
Zheng Yi said that the Tianjin municipal government asked Tianfan to pay for its abusive and corrupt policies, which aggravated Tianfan’s debt crisis.
On August 12, 2015, a big explosion occurred in Binhai, Tianjin, which affected seven surrounding districts and caused serious damage to houses. As a result, four other state-owned enterprises, mainly Tianfang, were asked by the government to fund the repair of damaged houses, and the total amount involved was about 5 billion yuan.”
At that time it was the time of the Communist Party’s September 3 military parade, the official in order to maintain the stability of the victims do not make trouble, requiring Tianfang and other enterprises to pay compensation to the affected people first, “all the victims who signed the resettlement agreement before the parade date also added 20,000 yuan, which all the funds involved by Tianfang and other enterprises to raise their own, which further increased the financial burden of Tianfang. “
In 2016, Tianfang was asked to take over the Tianjin Mingmen Square project. “It was a corruption-induced rotten and illegal project, a property left behind after the developer Zhao Jin was taken away for investigation in a corruption case (which involved municipal leaders) in 2014, involving a total of about 3,200 households and requiring $3.3 billion in funding (including funds to demolish the original project and secondary development). “A business with already low profitability meets this kind of project, and that is definitely a double-kill situation.” Zheng Yi said.
Five, the rule of man management system, factional infighting fierce, resulting in personnel and finance, etc. can not be centralized management
Zheng Yi said, Tianfang is apparently under the jurisdiction of SASAC, but Tianfang and SASAC, including the Organization Department, are equal-level units, so SASAC and the Organization Department do not have the power to dismiss the board members of Tianfang Group, and personnel appointments have to be decided by the municipal party committee leaders, “which leads to the rule of man rather than the rule of law, which has laid the groundwork for infighting.”
In addition, Tianfang’s board structure replicates the power structure of the Chinese Communist Party, from the “nine dragons ruling the water” to the “seven kings of heaven (directors),” corporate governance has always been a vassal system, with each of the directors “dividing their jurisdictions and not interfering with each other. Do not interfere with each other, the natural cause of subordinate companies and employees between the faction and the problem of teamwork, the situation is serious to the subsidiary has its own personnel system, financial system and governance system, and Tianfan Group headquarters does not have the authority to govern, factional division directly affects the financial operations.”
The Utopia Meijiang project (also known as Yuecui Residence), a new landmark residential building in Tianjin, began in 2016 with a total investment of $3.5 billion, land costs of $1.95 billion and construction costs of $850 million.
“The project is the essence of the infighting, in order to build this building, when the construction of less than 10 years of the Tianjin Institute of Commerce teaching building knocked down, but the project in the process of fully capped inspection found quality problems, the cement grade is not up to standard, the minimum grade required should be C35, but the actual detected grade for C25, which is typical of jerry-building, to say that it is negligence, I’m afraid it is difficult to convince people .”
Zheng Yi said, “On the issue of demolishing the project or not, the incident was exposed due to infighting at the top of Tianfan, with one party trying to get rid of the other, which not only triggered a large-scale mass incident, but also brought difficulties to Tianfan’s financing. The project has not been solved so far because the demolition fund is expected to need about 200 million more, and also to compensate the loss of home buyers.”
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