Fusheng International, a subsidiary of mainland real estate company Fusheng Group, had to sell its properties in Hong Kong due to financial difficulties, and Fusheng International lost RMB 157 million in this transaction.
According to the Daily Economic News, Fusheng International announced on April 14 that it sold its property located at 39 Wang Chiu Road, Kowloon, Hong Kong, Phase 3 of Enterprise Square to an investment company for HK$790 million on March 28 through the company’s indirect wholly-owned subsidiary, Longtong Limited.
The HK$790 million sale price was again more than 20% lower than the HK$1 billion bid circulating in the market at the end of last year, and 40% lower than the HK$1.33 billion purchase price in early 2018. The sale of the property resulted in a book loss of approximately HK$540 million for Fusheng, a loss of 40.6%. It is expected that Fusheng will record a loss of RMB 157 million for this sale.
Regarding the reasons for this asset sale, F&C International said that the vacancy rate of commercial properties in Hong Kong has increased significantly due to the plague, the overall rental rate of F&C’s Kowloon East properties has dropped significantly, and F&C intends to use the proceeds from the sale to settle the outstanding borrowings in order to reduce the burden of immediate cash inflow required to settle the debts as they fall due.
On March 31, Fusheng International announced that it was unable to confirm the consolidated financial statements for the year 2020 due to the lack of financial statements and related information for the year 2020 of its non-wholly owned subsidiary, Jiaxing City Platinum Property Co. And according to the listing rules of the Hong Kong Stock Exchange, a listed company is required to publish an announcement of the preliminary results of the previous financial year no later than three months (on or before March 31) after the end of the company’s financial year. The failure of the subsidiary to submit financial statements in a timely manner also reflects, to a certain extent, the embarrassing current situation of Fusheng Group, the parent company of the current internal and external difficulties.
According to the previous financial report, as of the end of June 2020, Fusheng International’s short-term borrowings amounted to RMB 4.189 billion, a significant increase of 81.82% year-on-year. During the same period, its cash and cash equivalents only amounted to RMB802 million, which could not cover its short-term borrowings at that time.
On November 19, 2020, Fusheng Group announced that it could not pay the principal and interest of “18Fusheng02” on time, totaling RMB 631 million. Due to the bond default, Dagong International decided to downgrade the main credit rating of Fujian Fusheng Group from A+ to C, and the credit rating of “18 Fusheng 02” was adjusted from A+ to C, “18 Fusheng 03”, “19 Fusheng 01” and “19 Fusheng 01”. The credit ratings of “18 Fusheng 02” were adjusted from A+ to C, “18 Fusheng 03”, “19 Fusheng 01” and “19 Fusheng 02” were adjusted from A+ to CC.
Wind data shows that five bonds of Fusheng Group will mature in 2021, with a total amount of 3.33 billion yuan; another four bonds will mature in 2022, with a total amount of 5 billion yuan.
The data shows that from 2017 to 2019, the total liabilities of Fusheng Group are 44.846 billion yuan, 61.644 billion yuan and 70.664 billion yuan respectively, and the scale of liabilities continues to rise.
While the debt pressure is increasing, Fusheng International’s performance is also declining. 2020 semi-annual report shows that Fusheng International’s operating revenue was 685 million yuan, a significant increase from 299 million yuan in the same period of 2019, but profits fell significantly, from 105 million yuan in the middle of 2019 to -386 million yuan in the first half of 2020; at the same time, gross profit margin also dropped significantly by more than 15 percentage points to 10.12%.
Fusheng International has suspended its trading from 9:00 a.m. on March 29. As of the close of trading on March 26, Fusheng International reported HK$0.02 per share, with a total market value of HK$230 million.
The financial difficulties also caused a number of projects developed by Fusheng in Fuzhou, Tianjin and Zhangzhou to be in a state of stoppage or semi-stoppage.
In August last year, the Chinese Communist Party authorities drew three red lines for mainland real estate enterprises as a condition for raising capital. Many real estate enterprises stepped on the three red lines and were restricted from issuing debts and could not borrow new money to repay old ones as they did before, causing capital tension, which hit real estate enterprises that relied on borrowing to expand in previous years tremendously. Some of them had to sell some of their projects in exchange for funds. Fusheng Group is a microcosm of some real estate enterprises on the mainland.
Ltd. was founded in 1993, headquartered in Fuzhou City, Fujian Province, is a large comprehensive group in the field of real estate, construction and other multi-industry development, with subordinate subsidiaries such as Fujian Fusheng Group, Fujian Six Construction Group, Shenzhen Fusheng Group.
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