Fuli real estate short debt crisis is imminent! Fund gap: 28.366 billion yuan

category:Finance
 Fuli real estate short debt crisis is imminent! Fund gap: 28.366 billion yuan


Source: new wealth

Author: Du Dongdong

In recent six months, the market has been paying attention to whether Fuli real estate (02777. HK) is facing cash flow dilemma. On July 26, 2019, an internal document signed by Li Silian, chairman of Fuli real estate, in principle, the suspension of land acquisition was circulated on the Internet, exposing the companys capital hunger. By the end of March 2020, there have been more than 100 real estate enterprises declared bankruptcy in the country, and its situation is of concern.

It is often seen. City has passed the novel coronavirus pneumonia since 2020. More and more cities have passed oral departments to relax restrictions on purchase and loan and credit, and rumors of loosening housing market are common. At the executive meeting of the State Council held on April 14, it was decided to increase the renovation of old urban communities. According to the news of the meeting, all regions plan to transform the old towns and districts Three point nine 10000, double the number in 2019.

The news is a flash of light at the end of a tunnel, for example, for Fuli real estate, which is good at old reform.

As early as in 2008, during the financial crisis, Fuli real estate was once also short of capital chain, even life and death. In 2009, the state quickly launched the four trillion stimulus plan, and Fuli real estate stepped out of the dilemma. The plot of this story sounds familiar nowadays. It is blessing in disguise that the novel coronavirus pneumonia is facing a special case of the new crown pneumonia.

Will history repeat itself? Is the productive capacity once again saved?

01

Funding gap two hundred and eighty-three point six six Billion yuan, the short-term debt crisis is imminent

The sales amount of Fuli real estate in mid-2019 is 60.22 billion yuan, only 37.64% of the sales target of 160 billion yuan in that year, far lower than the speed of the same period in 2018. According to the calculation at that time, Fuli real estates short-term and long-term loans are 57.9 billion yuan at the current maturity, while its cash and cash equivalents are only 23.5 billion yuan at the same time, with a capital gap of at least 34.4 billion yuan.

At that time, the situation has made investors very worried.

According to the annual report data released on March 26, 2020, the equity contract sales target of Fuli real estate in 2019 is 131.89 billion yuan, only 86.37% of the annual target. By the end of 2019, Fuli real estates debts due within one year reached 62.27 billion yuan. Although it claims to hold 22.904 billion yuan in cash, the funding gap has further expanded to 39.366 billion yuan (Table 1). This means that the situation of fund shortage of Fuli real estate has not been relieved, but has become more serious.

On April 3, 2020, Moodys, a rating agency, put the B1 business family rating of Fuli real estate and its Hong Kong subsidiary on the downgrading watch list. Moodys believes that in view of the large-scale refinancing demand of Fuli real estate in the next 12-18 months, the downgrade of its business family rating reflects our concerns about its high debt leverage and rising liquidity risk.

To be completed on December 30, 2019 two point seven three 100 million shares of new H shares thirty-seven point three five After HK $billion, in the first quarter of 2020, Fuli real estate has intensively issued applications for more than 23.6 billion yuan of total financing lines, although many projects have been accepted. According to wind, Fuli real estate issued a corporate bond on April 21, 2020uff08 032000374.IB uff09, raised 1 billion yuan. On May 10, Shenzhen stock exchange news showed that the status of 10 billion yuan of small public bonds issued by Fuli real estate in 2020 was updated to pass. Even if 11 billion yuan is available, Fuli real estate still has two hundred and eighty-eight point three six A gap of 100 million yuan. If we make the most optimistic estimate, all these bond financing projects have been successfully implemented, and there is a funding gap of more than 14.7 billion yuan. This means that Fuli real estate still needs to complete more than 14.7 billion yuan of receivables, or withdraw equivalent cash from other places to fill the gap.

In other words, the current security of Fuli real estate depends on two key factors - sales collection and financing ability. Otherwise, the company faces the risk of capital chain rupture, at least it needs to sell assets to survive.

So, how about the sales receipts of Fuli real estate? What is the financing capacity? How much money pressure is there? How high is the risk of short-term repayment? Heres a look.

Poor sales under the tone of housing is not fried

Sales data shows that from January to February 2020, the sales volume of Fuli real estate is only 8.68 billion yuan; in the first quarter of 2020, the sales volume of its equity contracts is 24.81 billion yuan, and the sales area is about 2.516 million square meters, up 3% and 11% year on year respectively. It can be seen that the sales effect of Fuli real estate is not optimistic, and the growth rate of sales area is much higher than the growth rate of sales amount, which should have the ingredients of price for quantity, low profit and high sales.

Fuli real estate encountered the sales dilemma, the whole industry felt the same. Wind data shows that in February 2020, the cumulative sales amount of top 30 real estate enterprises is two thousand one hundred and fifty-seven point two nine Billion yuan, down month on month 40.94% ; cumulative sales area one thousand seven hundred and sixty-seven point five eight 10000 square meters, down on a month on month basis 35.09% u3002 According to the data of the National Bureau of statistics, in the first quarter of 2020, the sales area and sales volume of commercial housing in China decreased by about 30%. In the same period, the scale of full caliber sales performance of top 100 real estate enterprises decreased year on year 20.8% u3002

As mentioned above, in the first half of 2019, Fuli real estate only achieved 37.64% of the annual sales target. Li Silian later said at the mid-term performance conference that the equity contract sales of Fuli in the second half of the year should be about 90-100 billion yuan, about 150 billion yuan and 160 billion yuan in the whole year, which is no big problem..

According to the actual completed sales scale in 2019, the average monthly sales scale of Fuli real estate is only 11.517 billion yuan. It is rumoured that Fuli real estate has started selling all the houses in the second half of 2019, trying to use the strategy of price for quantity to speed up the sales and recovery of funds. However, the actual sales progress is far from Lis expectation. According to the data, the total quarterly sales volume of Fuli real estate is about 40 billion yuan, that is to say, its monthly average sales in the second half of the year is only about 13 billion yuan.

According to the 2019 annual report, Fuli real estates equity land reserve in Hainan Province is 30.36 million square meters, including Yueshan lake, Yuehai Bay, Hainan capital, Lingshui Fuli Bay and mangrove bay. Hainan is an important market for Fuli real estate, but in the past two years, Hainans real estate market regulation is particularly severe. In March 2020, Hainan Province tightened the property market policy again, announced the new transfer of land construction of commercial housing, the implementation of the existing housing sales system. This means that Fuli real estate has to build up the house before it can be sold, and it cant be sold any more. In this context, whether the land held by Fuli real estate can be well realized is a problem.

In 2019, there are 6 listed real estate enterprises that fail to reach the annual sales target, including China Merchants land (00978. HK), Greenland Hong Kong (00337. HK), COSCO Group (03377. HK), Poly Real Estate (600048), Jingrui Holdings (01862. HK) and Fuli real estate. The corresponding sales target completion rates are 99.03%, 96.92%, 92.88%, 92.37%, 89.64% and 86.37% respectively. It can be seen that the weak sales situation of Fuli real estate has appeared since 2019. Furthermore, Fuli real estate is one of the large-scale real estate enterprises with relatively backward sales performance in the industry.

As early as the spring of 2018, Fuli real estate put forward a three-year plan with a sales target of 300 billion yuan for the first time. The target has increased from 81.8 billion yuan in 2017 to 300 billion yuan in 2020. Looking back in recent years, its judgment seems too optimistic.

If we continue the previous momentum, it is still a big question mark whether Fuli real estate can achieve its sales target in 2020.

Fuli real estates years of hard dematerialization is not the only example of the real estate industry. At the end of July 2019, after the central government set a strict tone again, the policy of real estate without speculation has been deepened, and the basic principle of real estate regulation is quite clear. Since the outbreak of novel coronavirus pneumonia in 2020, many governments have issued the property support policy during the epidemic. However, the one second policy has been staged. According to incomplete statistics, at least five cities have suffered light death in the new deal. Local governments with loose sales in the real estate market have been interviewed, and the central governments determination of no speculation in housing can be seen.

In recent years, the bankruptcy of real estate enterprises has become a reality from a legend. According to incomplete statistics, in 2019, the government carried out more than 400 real estate regulation and control, 528 real estate enterprises nationwide declared bankruptcy, and the famous real estate enterprises in the past, such as Yinyi group (000981), Wuzhou group and Xinguang Group, were among them. Sansheng Hongye, the top 100 real estate company, was found to be in arrears with a large amount of project funds, employees wages and debts. A large number of national projects were shut down. The debt crisis broke out and the company entered the countdown to bankruptcy. The cash flow of Yihe real estate, an old Guangdong real estate company, was nearly exhausted. Under the theme of no speculation in housing policy, in 2020, the wave of bankruptcy of real estate enterprises continued to play out. As of the date of publication, more than 100 real estate enterprises applied for bankruptcy.

Data released by the central bank in recent half a year shows that the growth rate of real estate development loans has fallen steadily, accounting for a significant decline in the proportion of incremental loans over the same period. The central bank strictly controls the inflow of funds into the real estate market, making it more difficult for real estate enterprises to obtain loans. The national housing loan quota and interest rate are both tightened. The benchmark up 5% is no longer the starting price of housing loan interest rate. Many banks have implemented the first loan policy of benchmark up 8% or 10%, or even matched with a certain amount of financial products.

In 2019, the vacancy rate of Grade A office buildings in Shenzhen, Shanghai and other places increased, and the rent of Grade A office buildings in Shenzhen continued to fall for five consecutive quarters, with the vacancy rate exceeding 20%, becoming the city with the highest vacancy rate of office buildings in the first tier cities. On November 22, the Shenzhen land auction market launched six residential land uses, all of which adopted double limit and double competition. After on-site bidding, six plots did not reach the maximum price limit. One of them was auctioned because no one raised a brand, and the winners were all state-owned enterprises and state-owned enterprises.

In 2020, the novel coronavirus pneumonia affected the reduction of commercial real estate rental costs. The real estate business in winter did not see a significant warming trend. After the phased progress of the epidemic control, the demand for office buildings, hotels, shops and other commercial projects in the first tier cities is still recovering slowly, as can be seen from the bleakness of the commercial real estate market.

According to the data as of April 10, 2020, the average growth rate of sales target of 40 real estate enterprises that have announced their sales target in 2020 is significantly smaller than before, with the average growth rate less than 14%, a new low in recent years. Among the 34 enterprises that raised their sales targets, most of them set sales growth targets between 10% and 20%, which shows that large and medium-sized real estate enterprises are generally cautious.

Represent the general trend of novel coronavirus pneumonia, which is the main theme of the real estate market. Even if the sales policy is loose, it is difficult to change the trend of real estate supply and marketing. Judging from this trend, the sales performance decline of Fuli real estate in 2020 will continue, and there is even the possibility of pessimism. At present two hundred and eighty-three point six six Billion yuan (as shown in the financial statements in 2019 three hundred and ninety-three point six six RMB 100 million fund gap, deducting the fund gap of RMB 1 billion raised by issuance of bonds on April 21, 2020 and RMB 10 billion of small public bonds approved for issuance on May 10, 2020), which is equivalent to the scale of RMB 58.7 billion receivables 48.32% u3002 The industry is sluggish, the sales are weak and the receivables are weakened. It is a great pressure to rely on the sales receivables to fill the hole of cash flow.

However, the difficulty of sales and collection is very high, which not only deeply affects the return of sales funds, but also severely restricts its financing ability.

Financing dilemma under huge credit financing

According to the data (Table 2), the net cash flow generated by Fuli real estates operating activities has been negative year after year, and has declined rapidly from - 400 million yuan in 2015 to - 24.1 billion yuan in 2019. It can be seen that Fuli real estate has been in the state that the main business of the current real estate cannot realize the positive payment for many years.

After 2017, Fuli real estate is vigorously reducing the cash flow of its investment activities. In the same period, the net cash flow generated from investment activities dropped rapidly from RMB 22.6 billion in 2017 to RMB 5.4 billion by the end of 2019, and the investment scale is reduced to a new low in the near future.

However, in recent years, Fuli real estate totally relies on external financing to maintain its cash flow balance, and its net cash flow from financing activities in the same period has continued to soar from 3.5 billion yuan to 32.5 billion yuan at the end of 2019. Fuli real estates dependence on financing is not only not alleviated, but also increasingly thirsty. In a sense, the main businesss hematopoietic capacity is weak. Under the mode of financing and debt renewal, the financing capacity of Fuli real estate is related to its cash flow security, and it is a key to determine the future of the company.

Since the macro-control in 2010, the IPO of A-share real estate enterprises has been put on hold. The real estate enterprises such as Bluelight development (600466) and Taihe Group (000732) have completed the curve listing only by merger and reorganization. Up to now, Wanda, Evergrande and other leading real estate enterprises have had several years of plan a, but there is no following.

Since 2007, Fuli real estates plan to return to a is also difficult to promote. On December 30, 2019, Fuli real estate completed the placement of 273 million new H shares and raised 3.735 billion Hong Kong dollars. Under the current macro-control tone, this equity financing loosening has become a net opening. On April 8, 2020, Fuli real estate announced that it planned to move the general meeting of shareholders to approve the extension of the validity period of A-share IPO. According to reports, Fuli real estate plans to issue no more than 1.07 billion a shares on the Shanghai Stock Exchange and raise no more than 35 billion yuan.

In recent years, there is no successful background for the return of real estate companies to a, will Fuli real estate become the first real estate company to successfully IPO in a shares? With the current policy orientation of real estate without speculation and the debt risk of Fuli real estate, how many opportunities does it have to complete equity financing?

In recent years, the financing of Fuli real estate is mostly debt projects. New wealth classifies the interest bearing debt of Fuli real estate in the past two years according to the length of debt term and whether there is asset mortgage, so as to estimate its debt repayment ability in the next year.

In the next year, after the maturity of 24.034 billion yuan of credit financing, Fuli real estate needs to issue debt financing to realize borrowing new to repay old. In addition, on January 16, 2020, the company issued 700 million yuan of ultra short-term financing bonds, on April 21, it raised 1 billion yuan of bonds, and on May 10, it raised 10 billion yuan of public bonds. Fuli real estate still has a financing demand of at least 12.334 billion yuan.

Of the 62.271 billion yuan of debts due within one year, Fuli real estate has 36.931 billion yuan of asset mortgage loans. Asset mortgage financing is usually guaranteed by the net asset value of the enterprise, and the upper limit of issuance is generally limited to the scope of the enterprises mortgage assets. If the real estate market is cold, the mortgage value of real estate assets may fall. According to rough calculation, if the market value of mortgage assets falls by 10% and 20%, then Fuli real estate will increase the capital gap of 3.824 billion yuan and 7.648 billion yuan, and its credit financing demand may expand to 16.158 billion yuan and 19.982 billion yuan. And the debt of credit financing part borrow new to repay old is under heavy pressure.

If the debt financing is not effective, the cash flow may break.

Looking back on the financing history, Fuli real estates capital sources have shifted from bank loans to corporate bonds, then to short-term financing bonds, as well as the issuance of priority notes overseas. The scale of financing has dropped sharply year by year, the cost of financing has risen rapidly, and the term of financing has become shorter and shorter. Since May 2019, Fuli real estate has issued a super short-term financing bond with a term of 120 days on January 16, 2020, a 1 billion yuan public offering bond with a term of 10 billion yuan on April 21, and no more financing projects have been approved.

On the whole, in terms of domestic financing channels, Fuli real estate has no more projects. In the first quarter of 2020, Fuli real estate intensively issued applications for more than 23.6 billion yuan of total financing lines. Although many projects have been accepted, they have not been settled. If all the aforementioned bond financing projects are successful, 94.25% of the matured credit debt can be covered, and there is still a capital gap of 1.44 billion yuan. This is the most optimistic situation.

In essence, the financing progress of domestic real estate enterprises, on the one hand, is largely subject to the policy environment of financial supervision, on the other hand, it is determined by the quality of the real estate enterprises themselves. The high asset liability ratio of Fuli real estate may be a hard injury to its debt financing.

In recent years, Fuli real estate has made great progress and high debt has become its label. From 2015 to 2018, the companys net debt ratio was 124%, 160%, 170% and 184% respectively. At the end of the third quarter of 2019, its net debt ratio rose to 218.4%. As of the end of 2019, its net debt ratio is still as high as 198.88%. According to the report of China Real Estate Association, the average net debt ratio of listed real estate enterprises in 2019 is 92.52%, and Fuli real estate is more than twice the industry average.

From the perspective of equity structure, Li Silian and Zhang Chang respectively hold 29.9% and 29.33% shares of Fuli real estate, with a total of 59.23% shares held by them. According to the latest market value of Fuli real estate of HK $33.2 billion (closing on May 13, 2020), it is about HK $19.664 billion. However, the stock market value of Hong Kong stock is flexible, and it is easy to shrink significantly in case of emergency. The most extreme situation occurred on October 27, 2008, when Fortis real estate suffered a one-day decline of up to 51%, closing down to - 25.11%. If the progress of debt financing is not as expected, with an optimistic estimate of 50% pledge financing rate, the funds available for equity pledge of both parties will not exceed HK $9.84 billion (equivalent to RMB 8.954 billion), which is still insufficient to alleviate the fund gap of more than 12.3 billion yuan of Fuli real estate in the latest year.

Since 2019, Fuli Bay project in Huizhou, a subsidiary of Fuli, has encountered fierce rights protection from the owners. As the executee, it has been executed 212 times, with more than 100 cases waiting to be executed. On October 11 of the same year, Fuli real estate withdrew from the previous and time Chinauff08 01233.HK uff09Cooperation projects in Shantou.

According to qixinbao data, as of April 2020, fuliwan project company, as the executee, has executed 79 times, 183 associated risk projects, involving the execution amount of 36.359 million yuan, ranging from several thousand yuan to several million yuan, and there are hundreds of subsequent cases waiting for judgment and execution. On March 7, 2020, another news came out that a 84 year old man was hit by a billboard in the ICU, while Fuli real estate was in arrears of 150000 medical expenses.

It can be seen from the analysis that it is rumoured that Fuli real estates cash flow is highly strained, and its short-term debt crisis is imminent. Land acquisition is the basis of sales and operation of real estate enterprises. Suspension of land acquisition means that the real estate enterprises will break their arms in debt repayment, which will also weaken their long-term debt repayment ability, which is the next policy. Due to the inability to cash in the debt, poor sales and financing, Li Silians request for suspension of land acquisition should be helpless.

In fact, the financial risk of Fuli real estate is indicated in the statement. Quick ratio is an important index to reflect the solvency of listed companies. It is the value of quick assets divided by liabilities due within one year. Generally speaking, if the quick ratio is less than 1, it indicates that the listed companys repayment ability is poor; if it is less than 0.5, it indicates that the company has short-term debt repayment ability risk. According to wind data, the quick ratio of Fuli real estate decreased from 0.8 in 2016 to 0.44 in 2018, and the latest data released in 2020 remains below 0.5 (0.49).

Previously, in the shadow of the capital chain, real estate enterprises such as oceanwide Holdings (000046) have successively sold project equity to withdraw funds to survive without arms. Now with the rich and powerful real estate is willing to follow the same path?

In a word, Fuli real estate is in a passive situation at present. The biggest variable that determines its safety lies in the emergence of miracle of macro-control policies.

02

Miracle scene: How did you survive in 2008?

At the time of the financial crisis in 2008, Fuli real estate was once in a critical situation where the cash flow might break, but then a miracle appeared, and finally it was saved. In the highly cyclical real estate industry, there are countless real estate enterprises that have survived the cycle and disappeared. Fuli real estate has finally escaped a disaster, which must be said to be very lucky.

How did the miracle happen? Play back the camera to the end of 2007. In order to curb inflation and overheating of the economy, the central bank raised interest rates six times in a row, raised deposit reserve ratio 10 times in the same year, and launched the 9.27 new housing loan policy, in order to comprehensively curb the soaring trend of house prices. In 2008, the central banks macro-control has not stopped. From January 25 to June 7, 2008, it raised the reserve ratio from 14.5% to 17.5% five times in a row.

Although the wind direction has changed significantly since the end of 2007, but in early 2008, there are still fierce and fierce real estate enterprises gambling.. On January 8, 2008, Evergrande real estate obtained the plot of silk and hemp factory located in Yuancun, Guangzhou, with a floor price of 130000 yuan / m2, through 100 rounds of bidding, with a price of 4.1 billion yuan nearly 8 times higher than the base price. The plot became the second king of land in Guangzhou at that time.

After the game between the real estate enterprises and the central bank, a fierce round of house prices plummeted one after another. In April 2008, Vanke took the lead in price reduction and sales promotion in Hangzhou, which then spread to more than 30 cities in China. The tide of price reduction has aroused the anger of buyers, and some pre-sale places of real estate have been blocked or even smashed. In Nanjing, the government issued a huge fine of 40 million yuan to Vanke for the price reduction. In the stock market, the share price of the real estate sector fell to suffocation. As of September 2008, the stock prices of Vanke, Poly Real estate, country garden (02007. HK) and CNOOC development have dropped 88%, 75%, 87% and 70% respectively.

As the vanguard of the expansion of real estate enterprises in 2007, Fuli real estate is hard to be independent when recession strikes. From April 14 to 16, 2008, shares of Fuli real estate fell 11.16%, 5.33% and 2.4% respectively.

At that time, compared with peers who have opened and quickly recovered funds, Fuli real estate was more radical, and once tried to down payment installment and other sales methods. According to some data, the maximum price reduction of three projects under Fuli real estate in Beijing is nearly 30%, and the overall strategy of increasing the holding type operating property launched before has been completely stopped, and assets have been sold one after another. Under the pressure of the market, Li Silian also changed his low-key style and had to come out frequently to refute rumors.

The most difficult time for Fuli real estate was in the second half of 2008. Data at the end of 2008 (Table 4) shows that the total turnover of Fuli real estate reached one hundred and fifty-four point three nine Billion yuan, net profit decreased 37.24% to thirty-one point three four Billion yuan, 16 billion yuan of agreement sales, lower than the 24 billion sales target set at the beginning of the year. Fuli real estate continues to focus on sales, and its cash flow from operating activities at the end of 2007- eighty-three point two seven RMB 100 million, rapidly increased to the thirteen point one five The cash flow of financing activities has been zero point eight seven RMB 100 million turned negative to- two point three two Billion yuan.

According to wind data, at the end of 2008, Fuli real estate had only 1.4 billion yuan of cash and cash equivalents, and 4.6 billion yuan of receivables in total, while the debts due in the same period (short-term loans and long-term loans due in the current period) reached 9.5 billion yuan, and the cash gap reached 3.5 billion yuan. During this period, Li Silian and tension should have spent countless sleepless nights.

The financial crisis is like a surging tsunami. It has a strong force, a rapid spread and a deep impact, which is beyond the expectation of the government. On the afternoon of September 16, 2008, Zhou Xiaochuan, known as the most determined governor of the central bank, appeared on the CCTV news channel screen and announced that the central bank decided to reduce the benchmark interest rate of RMB loans. The benchmark interest rate of one-year loans was reduced from 7.47% to 7.2%, and at the same time, the loan interest rate of individual housing provident fund was reduced.

In terms of stimulating real estate, on October 22, 2008, the Ministry of Finance announced that the deed tax rate of individuals first purchase of housing would be reduced to 1%, and the stamp tax and land value-added tax would be temporarily exempted for individuals purchase and sale of commercial housing; the central bank announced that the lower limit of the interest rate of the first real estate and ordinary improved real estate loan would be 0.7 times of the benchmark interest rate, and the minimum down payment proportion would be adjusted to 20%. Fiscal policy and monetary policy work together, the dose of which is unexpected. On November 10, 2008, the State Council launched a package plan to deal with the international financial crisis, which was later referred to as the four trillion stimulus plan by the outside world.

After the spring of 2009, the real estate market has resumed its ferocious trend in the past years, and the land with high price transaction is blooming everywhere in key cities. From May to December of that year, the record of king of the earth was broken again and again. Following this spring breeze, Fuli real estate not only recovered its business, but also completed a 5.5 billion yuan bond issuance.

Looking back at this roller coaster style of ups and downs, the market fell from the peak of enthusiasm in 2007 to the bottom, and then was pulled back to the previous real estate carnival, lasting about 8 months. From the data at the end of 2009 (Table 4), the asset scale and operating revenue of Fuli real estate are higher than those in 2007 and 2008.

Fundamentally speaking, Fuli real estate survived the crisis thanks to a series of national stimulus policies. At the end of 2018, the ending balance of cash and cash equivalents of Fuli real estate was only RMB 1.4 billion, and the net increase of this indicator in the same period was only RMB 100 million, which is dangerous for real estate enterprises. If the policy is slow again, the situation of Fuli real estate may be another scene.

03

The novel coronavirus pneumonia outbreak in 2020 was be taken by surprise by housing prices. In February 20, 2020, the regulation of wind in domestic real estate has changed. This makes the outside world wonder whether Fuli real estate will be saved again this time?

oday we are no longer as we have been

Since the end of last year, Fuli real estate has been financing frequently. On December 30, 2019, Fuli real estate completed the placement of 273 million new H shares and raised HK $3.735 billion, which is said to be used to repay the companys overseas debt financing. In 2020, the financing application of Fuli real estate is still accelerating. The total amount of financing involved in six consecutive debt financing projects exceeds 23.6 billion yuan (Table 5). On February 24, 2020, the government affairs service platform of China Securities Regulatory Commission showed that Fuli real estate had received materials for applying for full circulation of unlisted H shares in China. On April 8, 2020, Fuli real estate announced that it planned to move the general meeting of shareholders to approve the extension of the validity period of A-share IPO. According to the announcement, Fuli real estate plans to issue no more than 1.07 billion a shares and raise no more than 35 billion yuan in Shanghai Stock Exchange.

The recent financing projects submitted by Fuli real estate show that they have been accepted. According to the statistics of Kerui, in the first quarter of 2020, the financing amount of 95 typical real estate enterprises was 388.404 billion yuan, an increase of 14.98% on a month on month basis. In the past two years, the financing amount was at a high level, showing a marginal improvement trend. In the same period, the total amount of domestic and foreign bond issuance and financing of real estate enterprises reached 274.696 billion yuan, 36% of the total in 2019. 47% of the financing scale of real estate enterprises increased year on year, of which 57% of the financing growth of real estate enterprises exceeded 50% year on year.

On the whole, the current market financing signal change is unprecedented compared with the situation in the second half of 2019. These signs may indicate that the financing policy of real estate enterprises has a marginal easing tendency. As estimated above, if the above financing project of Fuli real estate is ready to land, it will be like rain from the sky, or it can solve the problem.

Short debt aggregation

Compared with 2008, the strategic layout and operation basis of Fuli real estate are also different. As early as around 2008, Fuli real estate is mainly located in the first and second tier cities. From 2011, Fuli real estate began to march into the second, third and fourth tier cities. By 2017, the layout of second, third and fourth tier cities has exceeded that of first tier cities.

In 2009, after the introduction of the four trillion stimulus plan, the rebound of the real estate market first appeared in the first and second tier cities. After the changes in the last decade, the second, third and fourth tier cities have seen several rounds of property market price increases. Vanke, rongchuang China and other top real estate enterprises have returned their strategic focus to the first and second tier cities in recent years. With the real estate market increasingly returning to rationality, the probability of the structural differentiation of domestic house prices is greater than the general rise. Once the market recovers, the first to benefit is the first and second tier cities. It is unknown how much Fuli real estate in the third and fourth tier cities can benefit.

More importantly, after a new round of expansion since 2016, Fuli real estates asset scale, liability scale and current liabilities increased rapidly. Data shows that the year-on-year increase of current liabilities in 2017 was 25.192 billion yuan, nearly 3.79 times of the previous years 6.654 billion yuan, and the year-on-year increase of current liabilities in 2018 was 65.053 billion yuan, 2.58 times of the previous year (Table 6).

Fuli real estates strong financing expansion has made its current liabilities ratio continue to rise. In 2016, the proportion of current debt to liabilities of Fuli real estate is 48.71% , which reached in 2018 59.97% The scale of current debt has changed from less than 50% to more than half. In 2019, the target is still as high as 58.78% u3002 Among them, the scale of short-term debt is growing rapidly, accounting for a higher and higher proportion, and the debt short-term feature of Fuli real estate is becoming more and more significant.

It is worth noting that the financing cost of Fuli real estate is also rising significantly. According to the data of 2019 annual report, the interest expense of Fuli real estate increased from 3.4 billion yuan in 2018 to 5.2 billion yuan in 2019, an increase of 1.8 billion yuan. Net profit in the same period increased from 8.391 billion yuan in 2018 to 9.672 billion yuan in 2019, an increase of 1.281 billion yuan (Table 7). Under the situation of poor sales performance, the sales strategy of price for volume has greatly weakened the long-term solvency of Fuli real estate. If the interest expenditure exceeds the growth of net profit, it means that under the condition of its own lack of hematopoietic capacity, Fuli real estate needs to cover the new interest part with more financing loan lines, further boosting its financing demand. The current interest expense growth exceeds the net profit growth. If this goes on, the borrow new to repay old capital cycle will be upgraded to the game of loan to support loan, and the debt situation may further deteriorate.

New wealth tracking found that this round of short-term debt surge is closely related to the ferocious commercial real estate acquisition of Fuli real estate in 2017. From 2015 to the fourth quarter of 2016, Chinas corporate bond financing policy was relatively loose, and the scale of bond financing of real estate enterprises expanded. In 2016, Fuli real estate issued bonds intensively eight times, with a financing scale of up to 42.5 billion yuan. This financing scale is unique in the history of Fuli real estate company.

In 2016, the debt scale of Fuli real estate increased by 45.059 billion yuan year on year, 30.238 billion yuan higher than the same index of 14.821 billion yuan in 2015. In other words, the new financing in 2016 was 45.059 billion yuan, of which 14.821 billion yuan was used to repay the revolving loan line, while another 30.238 billion yuan was used for acquisition and expansion. From the perspective of year-on-year financing increment, this fund should flow to a series of hotel asset project acquisitions in 2017.

In 2017, Fuli real estate swallowed 77 Wanda hotels. Since then, Fuli real estate has successively started 10 billion yuan commercial real estate projects in the UK, Hainan and other places (Table 8). The aforesaid commercial assets acquisition scale is about RMB 31.66 billion. That is to say, at that time, the capital of RMB 31.66 billion for acquisition came from short-term debt issuance. Because this debt financing belongs to the non recyclable credit line, which is a credit financing line without asset mortgage, it is difficult to renew the loan after maturity, so there is a shortage of capital of more than RMB 20-30 billion at present.

After a series of fierce commercial real estate expansion, the net cash flow generated by Fuli real estate investment activities quickly turned negative from RMB 2.5 billion in 2016 to RMB - 22.6 billion in 2017, which fell to the lowest value in history. This directly pushed up the financing pressure of Fuli real estate. In order to meet the huge cash flow demand, in 2018, Fuli real estate looked for funds everywhere.

However, the house leakage happens every night. Due to the upgrading of regulation and financing in the domestic real estate industry, and with the fourth quarter of 2016 as the turning point, the bond financing of real estate enterprises has become difficult. Since 2018, the real estate regulation and control has been upgraded again, and the financing channels of domestic real estate enterprises have been further tightened, ranging from the contraction of bank credit, the tightening of development loans of real estate enterprises, the limitation of the trust of the access to land funds financing channel, to the suspension of domestic bond issuance, the scale of bond financing has gradually dropped to the freezing point, and the cost of overseas bond issuance and trust financing has also been pushed up rapidly. In 2018, real estate enterprises such as Longhu group (00960. HK), Xincheng holding (601155), huaxiangnian holding (01777. HK) all suffered from the situation of blocked issuance of bonds.

According to incomplete statistics, Fuli real estate encountered four consecutive failed bond financing in 2018, which is a record far ahead in the industry. In that year, the financing tools of Fuli real estate were forced to shift from corporate bonds to short-term financing bonds with a very short term, and the scale of fund-raising also declined rapidly, from the earlier bond financing of more than 40 billion yuan in 2016 to less than 14.27 billion yuan in 2018; the financing of short-term financing bonds in that year was 7.17 billion yuan. In the interval of only one year, the scale of bond financing of Fuli real estate is almost halved (Table 9).

As corporate bond financing became more difficult, Fortis began to turn its attention to the issue of notes (table 10). Since the end of 2017, Fuli real estate has issued two phases of preferred notes overseas to raise US $1.3 billion. In 2018, Fuli real estate continued to issue 12 priority notes abroad, raising funds of US $4 billion (of which US $1.45 billion has been paid off at maturity). In about one year, the financing cost of the above-mentioned senior notes of Fuli real estate rose rapidly from 5.75% to 9.125%, and the financing cost increased nearly 60%.

There is cause and effect in everything. Everything is doomed. In a sense, the current short debt pressure of Fuli real estate is the bitter fruit of adding commercial real estate in 2017.

As shown in Table 11, Fuli real estate still has 57.607 billion yuan of debt due in 2021. It is conservatively estimated that the part without asset mortgage is at least 19.134 billion yuan, comparable to that in 2020. In other words, under the current strategic layout and market sales trend, the situation of Fuli real estate cash flow shortage will continue to exist. In a sense, the limited easing of the financing market, due to the current predicament of Fuli real estate, is to stop the boiling water and fail to eliminate the bottom line.

04

The bitter fruit of short debt and long investment

Commercial real estate is not a business, nor a real estate, nor a simple business plus real estate, Wang Jianlin said in his book Wanda philosophy. If it is sold after development, it cannot be called commercial real estate . Commercial real estate is a long-term real estate investment aimed at the rental income of retail property. Therefore, in order to operate long-term real estate investment, we need to match the real estate financial environment.

Although domestic banks offer 10-year and 8-year long-term loans, this is not suitable for commercial real estate. At present, the rate of return of foreign commercial real estate is 4% - 6%. As China is an emerging market, its income may reach 8% - 9%. But if the annual interest rate of the 10-year loan is 8%, the profit will be swallowed up. Therefore, the commercial real estate industry needs low-cost long-term capital, otherwise it is difficult to do. In recent years, real estate enterprises such as Yinyi (2017), sanshenghongye (2018), Guogou investment, Zhonghong holding, Huaye capital, Yihe real estate and so on, almost all involve the high proportion of commercial real estate. Industry insiders believe that the problem of mismatch of capital supply for commercial real estate projects needs to be solved by innovative financing methods such as asset securitization (such as REITs). As for the short-term debt financing funds, the short debt long investment behavior of investment in commercial real estate is even more taboo.

From 2015 to the fourth quarter of 2016, along with the momentum of loose monetary policy, Fuli real estate made great efforts to invest in commercial real estate projects. Since then, due to the monetary tightening and the deterioration of the financing environment, Fuli real estate has been in trouble and tired of coping. Monetary easing is like a cup of chronic poison, which makes people want to be intoxicated but stuck in their throat. A large number of commercial real estate assets further aggravate the superposition of heavy assets and slow turnover characteristics of Fuli real estate, which has become the Curse in its cash flow management.

And Fuli real estate overestimates its own capital operation ability. When Wandas hotels were sold to Fuli real estate, they were depreciated by 40% relative to the net book value of the assets. Now, if Fuli real estate sells its commercial real estate, how much book assets will shrink is hard to estimate. According to Wang Jianlin, as early as 2001, Wanda Group also used the traditional short debt inertial thinking of residential real estate development to do commercial real estate. With the macro-control in 2004, the disadvantages of short-term debt and long-term investment have been exposed, almost not through the crisis. Fortunately, we finally found a long-term financing channel and got billions of financing from strategic investors. Compared with Wanda Groups experience of disaster relief, if Fuli real estate is in distress, the strategy of crisis relief may not lie in the easing of financing policy, but in the help of people who are close to each other. However, in the current tense days, how many institutions are willing and able to become saviors? Source: new fortune editor: Yang bin_nf4368

And Fuli real estate overestimates its own capital operation ability. When Wandas hotels were sold to Fuli real estate, they were depreciated by 40% relative to the net book value of the assets. Now, if Fuli real estate sells its commercial real estate, how much book assets will shrink is hard to estimate.