China’s head real estate company Huaxia Happiness admitted to a lightning strike on Monday, making it another big financial story with a lot of attention recently, in addition to HNA Group’s bankruptcy restructuring announcement. It remains to be seen whether the government’s entry can reverse the decline of Huaxia Happiness.
(hereinafter referred to as “Huaxia Happiness”) issued an announcement and disclosed data on February 1, stating that as of January 31, 2021, Huaxia Happiness’ debt was overdue by 5.255 billion yuan, and its monetary fund balance was 23.6 billion yuan, of which only 800 million yuan were available, and the rest were restricted funds. So far, Huaxia has officially admitted to the burst of mines after being caught in a capital chain crisis for the second Time.
Since January 8, international rating agency Moody’s and a number of other agencies have downgraded Huaxia Happiness’ rating, arguing that its operation is lower than expected and faces debt default and financing risks, and Huaxia Happiness’ bond prices have fallen in response. Although for more than half a month Huaxia Happiness insisted on denying that the company had problems in its daily operation, it still could not boost investors.
As a leading operator of industrial new cities in China, Huaxia Happiness previously focused its business on electronic information, aerospace and other industries in addition to property development, creating comprehensive industrial clusters across the country. According to Chinese media “21st Century Business Herald”, the formation and first meeting of Huaxia Happiness financial institution creditors’ committee was held on February 1, in which Huaxia Happiness chairman Wang Wenhua attributed the overdue debt to “misjudging the environmental situation, the decline in the volume and price of environmental housing, the aggressive expansion and the impact of the Epidemic” and so on. At the same time, the heads of relevant departments of Hebei Province and Langfang City, the heads of the central bank and the CBRC, and representatives of financial institutions also attended the meeting.
In 2017, Langfang and Zhangjiakou in the Beijing-ring area have introduced “purchase restriction orders”, and the Beijing-ring property market has cooled down significantly. As a result, the operating profit of Huaxia Happiness, which has a strong position in Beijing, dropped significantly year-on-year, and the operating cash flow dropped by more than 300%. This is the first time Huaxia Happiness faced a capital chain crisis. And at this time, Ping An invested heavily in Huaxia Happiness, which temporarily solved the crisis of Huaxia Happiness, but Huaxia Happiness was greatly wounded and its ranking in the list of “China’s Top 100 Real Estate Enterprises” fell all the way. According to third-party agency E-House Kruger, Huaxia Happiness’ 2020 sales fell precipitously from a peak of $160 billion in 2018 to $96.3 billion. Coupled with the multiple rounds of epidemic hit hard since last year, according to Huaxia Happiness disclosed that the amount due to be repaid in 2021 that year is more than 100 billion, while the company’s current money fund of more than 20 billion are restricted and facing depletion of funds.
Some analysts pointed out that Hua Xia Happiness wants to get out of the predicament and must accelerate financing to save itself. However, according to the requirements of China’s national financial regulators, i.e., the gearing ratio after excluding pre-receipts should not be greater than 70%, the net debt ratio of real estate enterprises should not be greater than 100%, and the “cash to short term debt ratio” should not be less than 1, Huaxia Happiness has reached all three “red lines” this time. All three “red lines” have been touched, and financing is greatly restricted. Analysts pointed out that Huaxia Happiness had to turn to the government to get financing from major financial institutions. If the government doesn’t step in, Huaxia Happiness will follow in the footsteps of HNA’s bankruptcy restructuring.
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