Real Estate Firms Update Debt Restructuring Progress

Since November, several property companies, including Poly Developments and Financial Street, have announced financing activities one after another. Additionally, companies such as Sunac China, China Fortune Land Development, and ST Jinke have also made new progress in debt restructuring. Analysts believe that the overall financing environment in the industry is improving, the real estate sector is gradually rebounding, and the valuation advantages of leading property firms will be further enhanced.

More than a dozen property companies announced financing activities

Driven by favorable policies, the financing environment in the real estate sector has been steadily improving. According to preliminary statistics from reporters, since November, over a dozen property companies have revealed their financing actions. The financing methods include medium-term notes, short-term debts, and private placements, with fundraising purposes covering debt repayment, liquidity support, project operations, and asset acquisitions.

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On November 26, Poly Developments announced that the National Association of Financial Market Institutional Investors recently issued a notice agreeing to accept the company's medium-term note registration, which is valid for two years. The company will issue debt financing instruments at an opportune time within the validity period based on market conditions and relevant regulatory requirements, and will timely fulfill its information disclosure obligations.

On November 25, Financial Street announced that its public issuance of 17.5 billion yuan in corporate bonds has received approval for registration from the China Securities Regulatory Commission. The specific issuance details show that the actual amount of the bonds issued in this tranche is 1 billion yuan, with a coupon rate of 2.77% and a term of five years.

Previously, Zhangjiang Hi-Tech announced on November 16 that it had completed the issuance of medium-term notes amounting to 800 million yuan, with an interest rate of 2.49%. China Enterprise announced a revised private placement proposal on November 14, adjusting the fundraising amount from the original 4.5 billion yuan to 1.9 billion yuan, with funds still earmarked for project operations and liquidity support. On November 8, Electronic City stated it had completed the issuance of ultra-short-term financing bonds totaling 500 million yuan, with an interest rate of 2.44%. Furthermore, since November, listed property firms like China Merchants Shekou, Joy City, Guangming Real Estate, Xixia Construction, Tianjian Group, Waigaoqiao, and Suzhou Hi-Tech have also successively disclosed related financing actions.

Liu Shui, the Director of Enterprise Research at the China Index Academy, analyzed that the financing environment for property firms is continuing to improve. Due to the formation of a cooperative mechanism among the government, banks, and enterprises regarding real estate financing, the "white list" is constantly expanding, which will help support project development and construction quickly and steadily, facilitating the efforts to guarantee housing delivery. "This not only helps alleviate the operational risks faced by property firms but also enhances their liquidity and reduces debt repayment pressure," Liu Shui said.

Many property companies have made progress in debt restructuring

Meanwhile, many property firms have also achieved new progress in debt restructuring. On November 23, China Fortune Land Development disclosed its trust debt repayment progress. To implement the company's debt restructuring plan, the company, through its wholly-owned subsidiary Gu'an Information Consulting, acted as both the trustee and the initial beneficiary, establishing a trust plan with 100% equity valued at 1 million yuan and a total debt of 25.584 billion yuan held by Gu'an Information Consulting across 11 target project companies. They plan to offset financial debts totaling no more than 24.001 billion yuan owed to "redeemable" financial creditors with the trust plan's beneficial rights. According to the debt restructuring progress disclosed by China Fortune, as of October 31, 2024, the company's total financial debt under its restructuring plan, amounting to 219.2 billion yuan, has achieved approximately 190.029 billion yuan in debt restructuring through contracts and other methods.

On November 22, ST Jinke announced the selection results of the company’s public recruitment for restructuring investors. It was reported that on November 9 and November 22, under court supervision, the manager and Chongqing Jinke facilitated two meetings of the restructuring investor review committee. Review members listened to the proposals from interested restructuring investors and graded their binding restructuring investment plans. Based on the scoring results, all reviewers confirmed that the "Pinqi Consortium" was selected as the restructuring investor for both the company and Chongqing Jinke. The company and Chongqing Jinke will negotiate the restructuring investment agreement and related documents with the selected investor as soon as possible. Updates on the progress of signing the restructuring investment agreement and the specific content of the agreement will be disclosed promptly.

In mid-November, Sunac China also disclosed the latest progress in its debt restructuring. The content shows that considering the overall operating status of its wholly-owned subsidiary, Sunac Real Estate Group Co., Ltd. (referred to as "Sunac Real Estate"), Sunac Real Estate intends to initially offer a comprehensive debt restructuring plan for bondholders, including cash tender offers, equity and/or equity economic benefit payouts, debt-for-equity swaps, and full-term extensions. Sunac China stated in its announcement that Sunac Real Estate will promote the domestic debt restructuring through a bondholder meeting.

Liu Shui pointed out that the recent debt restructuring efforts by companies like Sunac China provide valuable insights for other distressed companies in terms of debt restructuring and risk resolution. Methods such as discounted repurchases and debt-to-equity swaps can effectively reduce debt from the source, helping companies truly emerge from debt traps, and affording property firms time to regain liquidity in exchange for the potential rise in corporate value and repayment capacity. Liu Shui further analyzed that with the continuous reinforcement of favorable policies and the gradual improvement of the market environment, the peak debt repayment pressure on property firms has passed, showing an overall upward trend in the industry.

The valuations of leading property companies are expected to rise

The sales market in real estate is also showing signs of recovery. According to monitoring data from the China Index Academy, in October, the top 100 property companies saw their sales increase by 10.53% year-on-year, marking the first positive turn since March 2023. Additionally, data from the Ministry of Housing and Urban-Rural Development indicated that in October, the online transaction volume of new homes in first-tier cities rose by 14.1% year-on-year, while provinces such as Hunan, Tianjin, Guangdong, Jiangxi, and Jiangsu saw growth rates exceeding 10% in new home transactions.

"The real estate market is stabilizing at the bottom, which will help build confidence in the industry and aid in risk mitigation for property firms." However, Liu Shui also noted that while debt restructuring progress among property firms will alleviate industry risks, companies will still require market support to truly overcome their crises, and only after an improvement in their fundamentals can they avoid repeated extensions. "Ongoing supportive financing policies, combined with favorable policies on the demand side, will help stabilize and rebound the industry. If the market recovers, it will fundamentally promote the appreciation of property firm assets, enhance cash flow, and alleviate debt pressure."

From the secondary market perspective, data shows that as of the market close on November 26, among 112 listed property companies in the Shenwan Real Estate sector, stock prices of 47 companies have risen overall this month, accounting for more than 40%. Ten companies have experienced stock price increases exceeding 10% since the beginning of this month. Based on recent closing prices, the vast majority of property firms have moved away from the "1 yuan zone" which is close to delisting.

Overall, the real estate sector experienced a rise in market value at the end of September, followed by a partial market value correction of certain property firms in October. Since November, several firms have recorded varying degrees of stock price increases. Notably, companies with rising stock prices have largely benefited from asset restructuring and debt resolution progress. Companies like Gree Real Estate, Rongsheng Development, Guangming Real Estate, and Hefei Urban Construction have had mergers and acquisitions activities this month; while China Fortune Land Development and ST Jinke have made significant strides in debt restructuring.