The debt problem of Chinese real estate enterprises has been a major topic in the financial world in the past two years. Last year’s Evergrande and this year’s Huaxia Happiness are both real estate giants with the nature of potential mines. on the evening of April 29, Huaxia Happiness disclosed its 2020 annual report, during which the company achieved operating revenue of 101.209 billion yuan, down 3.80% compared with the same period of the previous year, and net profit of 3.665 billion yuan, down 74.91% compared with the same period of the previous year. And the quarterly report of 2021 disclosed on the same day showed that the company achieved operating revenue of 7.949 billion yuan during the reporting period, down 59.27% year-on-year, and net profit of -3.681 billion yuan, down 227.50% year-on-year.
By the end of the first quarter, the company had failed to repay a total of RMB 37.063 billion in principal and interest on its debts as scheduled. In other words, Huaxia has defaulted on 37 billion yuan. Huaxia said that it is actively coordinating with the financial institutions involved in the overdue extension related matters. But whether it can be coordinated is another matter.
On the evening of February 1, HHH issued a debt default announcement. The announcement said that up to now, the principal and interest amount involved in the overdue debt incurred by Huaxia Happiness Foundation Co. and its subsidiaries is 5.255 billion yuan, involving bank loans, trust loans and other forms of debt.
It is reported that since the fourth quarter of 2020 to date, Huaxia Happiness 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, which is basically a debt default.
In the regulatory round of real estate regulation, property sales performance fell rapidly, so that this 500 billion level of real estate giant net profit fell, unable to cover the debt plus now the first quarter of this year’s net profit plunged 74%, it can be said that debt repayment is even more remote. In addition to bankruptcy and collapse or restructuring, it seems there is no better way to go.
Any company’s thunderstorm is marked by signs, and HHW is no exception.
Since 2020, Huaxia’s share price has been tumbling, with a cumulative drop of more than 55%, and has suffered a waistline, and the total market value has evaporated as much as $45 billion.
According to the financial report data, as of the third quarter of 2020, the total assets of Huaxia Happiness are 506.813 billion yuan, and the total liabilities amount to 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 a sign of a bigger thunderstorm for Huaxia Happiness this time.
The default of two trust plans is like falling dominoes, triggering a series of vicious circles. As a result, the domestic bonds issued by HHW 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 HHW’s payment 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. It is also discussing the possibility of bankruptcy after being unable to bad debt. There is also news that in response to the debt crisis of Huaxia Happiness, the governments of Hebei Province and Langfang City have set up a task force and a debt restructuring plan is expected to be introduced in June. Whether it is bankruptcy or restructuring, big giants like ICBC and Ping An may hemorrhage money.
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 briefly mentioned to you earlier, as of the third quarterly report in 2020, Huaxia’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, and among these creditors, 35 banks are involved in 44 agreements; 9 trust companies are involved in 9 agreements. The total guarantee amount is 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 when observing the financial report of HHW in 2019: among 114 listed companies in the real estate sector, HHW’s earnings per share, net assets per share, net profit, total operating income and return on net assets are all ranked in the top ten. 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 Huaxia Happiness’ special model – 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, Huaxia Happiness’ industrial new city business has huge sunk capital, long return cycle and slow return of accounts receivable, which eventually dragged down Huaxia Happiness’ cash flow.
This was also once talked about in the project construction of the PPP model pioneered by the Chinese government, which is actually another form of public-private partnership that uses private enterprise funds to engage in infrastructure construction. Eventually, these private enterprises engaged in PPP projects were eventually dragged down, and 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 money speed fall, collapse, may not even survive this winter will go bankrupt, can not get rid of the fate of HNA, Founder, Brilliance these bankrupt companies, and finally we may hear a thunderclap!
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