(China Fortune Land Development Co., Ltd.), ranked 12th in the “2020 China Top 100 real estate Enterprises”, issued a debt default announcement on the evening of Feb. 1. Ltd. and its subsidiaries have overdue debts involving principal and interest amounting to 5.255 billion yuan, involving bank loans, trust loans and other forms of debt. At present, the company is actively coordinating with the above overdue involved financial institutions on matters related to the extension.
It is reported that since the fourth quarter of 2020 to date, Huaxia is due to repay the principal and interest of financing amounting to 55.9 billion yuan, excluding the net cash flow of financing after the support of major shareholders – 37.1 billion yuan, the company’s liquidity has become tight, resulting in the situation that some debts are not repaid as scheduled. It is basically a debt default.
As of January 31, 2021, the company’s monetary fund balance was 23.6 billion yuan, of which 800 million yuan was available, and 22.8 billion yuan of restricted funds were unavailable. 800 million yuan is still far from the 5.255 billion due loans.
In this regard, Huaxia said that the company’s liquidity phase is tight resulting in overdue debt, which may have a certain impact on the company’s operation and financing; the company is making every effort to coordinate all parties to actively raise funds in order to solve the relevant problems as soon as possible, and has reached a consensus with some financial institutions on extensions and so on.
At present, all these are just a drop in the bucket and cannot solve any problems. The fundamental reason is still because of Huaxia Happiness’ rapid decline in property market sales performance under the regulatory round of property regulation, which makes this 500 billion level abandonment giant’s net profit drop and cannot cover the debt caused by it.
Huaxia Happiness issued a debt default announcement, its parent company and subordinate subsidiaries incurred debt overdue involving an amount of 5.255 billion yuan (online photo)
There are signs for any company’s lightning burst, and Huaxia Happiness is no exception.
Since 2020, Huaxia Happiness’ share price has been tumbling, with a cumulative drop of more than 55%, and has suffered a waist cut, and the total market value has evaporated by as much as 45 billion. According to the financial report data, as of the third quarter of 2020, Huaxia Happiness’ total assets were 506.813 billion yuan, and total liabilities reached 415.871 billion yuan, with a high gearing ratio of 82%, which is considered relatively high. The scale of the company’s interest-bearing liabilities amounted to 218.5 billion yuan, and the scale of its short-term debt was 94.026 billion yuan. The pressure of debt servicing is huge.
Entering 2021, HHH’s situation is even more dangerous. Before this 5.2 billion credit fund default, on January 15, there have been two defaults on the Zhongrong Trust Plan, with the total principal and interest amount reaching 1.11 billion yuan. This is the symptom of a bigger lightning burst for Huaxia Happiness this Time.
Two trust plans defaulted, like falling dominoes, triggering a series of vicious circles. As a result, the domestic bonds issued by HHH sank collectively, even hitting the lowest price since trading data became available, while its surviving USD bonds also experienced a divergence, hitting the largest one-day drop and historical low since 2018, triggering market discussions on HHH’s cash-out risk.
On January 15, Fitch downgraded HH’s long-term foreign currency issuer default rating, senior unsecured rating and all outstanding bonds to “B”; on January 27, Fitch downgraded HH’s rating to On January 27, Fitch downgraded HH’s rating to “CCC” and moved it out of the negative rating watch list; on January 18, CGI adjusted HH’s rating outlook from stable to negative. After the successive credit rating downgrades, Huaxia Happiness’ financing difficulty surged, the pressure of borrowing new to repay old was huge, and the capital chain looked like it was about to collapse.
Then, officials from China’s central bank, CBRC, Ministry of Finance and Ministry of Housing and Construction met on Jan. 18 to discuss matters related to HHH, but have yet to reach a consensus on the next step; at a regular meeting on Jan. 19, the State Council also held a related discussion. A real estate enterprise default can make the central bank, CBRC and the State Council out as a topic of discussion, it can be said that there are not many, you can see that the situation is more critical.
Two days ago, there were media reports that HHH intends to set up a debt committee, led by the largest creditors ICBC and Ping An, and that HHH is consulting with advisors to develop an out-of-court debt restructuring proposal. And discuss the possibility of bankruptcy after being unable to bad debt.
Huaxia Happiness, has always been the real estate circle financing the most ferocious real estate companies, once known as the real estate industry’s most will do financial companies, and its no-fail financing means, for a long time was seen as an industry textbook widely known, extremely rich financing channels lead to its long-term high debt scale.
So, how much debt does the fiery Huaxia Happiness have in the end? As I’ve briefly mentioned to you earlier, as of the third quarter of 2020, HHH’s total assets were 506.813 billion yuan, its total liabilities amounted to 415.871 billion yuan, the size of the company’s interest-bearing liabilities amounted to 211.8 billion yuan, and the size of its short-term debt was 94.026 billion yuan. Especially, the short-term debt is very high, which is a sign of financial danger.
Huaxia Happiness has a gearing ratio of 82.09%, which corresponds to a net debt ratio of 214%, and a gearing ratio of 78% excluding pre-receipts, which not only all step on the “three red lines”, but if the perpetual debt is included in the debt, its financial leverage will be at an even higher level. It means that Huaxia Happiness’ future financing will only become more and more difficult.
Huaxia Happiness has also assumed a total of 159.874 billion yuan of external guarantees. This includes 63 guarantee agreements. Among these creditors, 35 banks are involved in 44 agreements; 9 trust companies are involved in 9 agreements, with a total guarantee amount close to nearly 30 billion. Once Huaxia Happiness defaults on its debts or goes bankrupt, these guarantee agreements will also be uninsurable.
In fact, Huaxia Happiness had a debt crisis in 2018, when it became the key to get out of trouble because of the introduction of the big Gold master Ping An, and the two capital injections of 18 billion yuan also allowed Huaxia Happiness to escape from a disaster. However, Huaxia Happiness has not been able to find sustained blood-making capacity, and the debt crisis is ultimately a paper that cannot hold fire. There is an interesting phenomenon in observing the 2019 financial report of Huaxia Happiness. Among 114 listed companies in the real estate sector, Huaxia Happiness’ earnings per share, net assets per share, net profit, total operating income and return on net assets are ranked in the top 10. However, HHW’s cash flow per share has been at the bottom of the industry, which is the reason why HHW is in deep capital chain crisis.
It all stems from the special model of Huaxia Happiness – industrial new city. Huaxia Happiness calls its model the developmental PPP model, that is, “government-led, enterprise operation, win-win cooperation”. In other words, after taking a piece of land from the government, Huaxia Happiness will carry out design and planning, land preparation, infrastructure construction, provide public support services, attract investment, industry incubation, industry acceleration, as well as urban and industrial operation and management and other public services. And the local government only supervises and approves the whole project process.
Compared with the high-turnover residential real estate of general real estate enterprises, Hua Xia Happiness’ industrial new city business has huge precipitated capital, long return cycle and slow return of accounts receivable, which eventually dragged down Hua Xia Happiness’ cash flow.
This is also what I have talked about in the project construction of the PPP model pioneered by the Chinese government, which is actually using the funds of private enterprises to engage in infrastructure construction, another form of public-private partnership. Eventually these private enterprises engaged in PPP projects were eventually dragged down, Huaxia Happiness is a typical example. The Chinese government’s pitiful 3P model and the fiercely competitive and dismal property sales market became the two main reasons for the collapse of Huaxia Happiness.
According to statistics, Huaxia Happiness’ full-caliber sales have slipped below 100 billion in 2020, a year-on-year drop of 1/3, and its industry ranking has fallen to 47th. This 100 billion real estate giant, is the amount of speed fall, collapse, may not even survive this winter will go bankrupt.
Can not get rid of HNA, Founder, Brilliance, the fate of these bankrupt companies, we will wait to hear the last sound of the biggest thunder burst!
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