2018-07-13

Victim of 2014 Slowdown, Formerly Bankrupt Kaisa Becomes White Knight

Caijing: 房企资金链危机频发 佳兆业接盘中弘股份海南项目
Before the transfer of equity financing by Huaxia Happiness, after the sale of Zhonghong shares, the capital chain tension of real estate developers began to surface.

On July 11, Zhonghong Co., Ltd. announced that it plans to transfer 100% equity of Hainan Ruyi Island, a wholly-owned subsidiary, to the Kaisa Group. Affected by Beijing's strict control of commercial property sales, Zhonghong shares have been caught in a capital crisis and debt crisis at the beginning of the year and have to sell assets for self-rescue.

Kaisa, which had suffered a bankruptcy crisis in 2014, is now a "white knight" of others.
Zhonghong is the first developer shot in this round of real estate regulation.

In 2017, Zhonghong shares lost a total of 2.5 billion. It said that due to the influence of the business management project (commercial housing) control policy, the sales of the Yumafang project and the Xiagezhuang project (commercial part) were stagnant, and the 2016 Ma Mafang project was sold in 2017 and the first quarter of 2018. A large amount of returned homes led to a sharp drop in sales revenue.

In the first quarter of this year, the company continued to lose money and expected a net profit loss of 300 million. To add insult to injury, Zhonghong, who has been seeking financing, has repeatedly failed.
See the linked text for more detail on the firm's financial troubles.
In order to repay the loan and restore liquidity, Zhonghong shares began to sell the project.

Hainan Ruyi Island is one of the company's relatively high-quality projects. It is a tourism and holiday development project with a target plot ratio of 0.74. Among them, commercial service facilities use 4.25 million square meters of land and 2.69 million square meters of saleable area. According to the previous plan of Zhonghong Co., the total investment of the project was 12.9 billion yuan. As of the end of last year, the actual investment of Zhonghong shares has reached 4.49 billion yuan.

Zhonghong, who holds high-quality resources, wants to borrow Ruyi Island, but the development of the Ruyi Island project has not been smooth. Ruyi Island's audit report for January-April 2018 shows that in the first four months of this year, Ruyi Island's profit loss reached 71.62 million yuan. As of April 30 this year, Ruyi Island's liabilities amounted to 8.6 billion yuan, of which long-term loans were 5.6 billion yuan, and interest payable, corresponding payments, and accounts payable totaled about 2.86 billion yuan.

According to the announcement, after the completion of the transaction, Zhonghong Co., Ltd. was able to obtain a cash and liabilities reduction of 81.92 million yuan, which was paid by Jiazhao after being offset by creditor's debts, and an increase of 1.03 billion investment income.

Zhonghong’s creditors, China Huarong and Bank of Beijing, have previously sent a letter to Zhonghong, saying that they welcome the acquisition of Ruyi Island by Kaisa.
In order to repay the loan and restore liquidity, Zhonghong shares began to sell the project.

Hainan Ruyi Island is one of the company's relatively high-quality projects. It is a tourism and holiday development project with a target plot ratio of 0.74. Among them, commercial service facilities use 4.25 million square meters of land and 2.69 million square meters of saleable area. According to the previous plan of Zhonghong Co., the total investment of the project was 12.9 billion yuan. As of the end of last year, the actual investment of Zhonghong shares has reached 4.49 billion yuan.

Zhonghong, who holds high-quality resources, wants to borrow Ruyi Island, but the development of the Ruyi Island project has not been smooth. Ruyi Island's audit report for January-April 2018 shows that in the first four months of this year, Ruyi Island's profit loss reached 71.62 million yuan. As of April 30 this year, Ruyi Island's liabilities amounted to 8.6 billion yuan, of which long-term loans were 5.6 billion yuan, and interest payable, corresponding payments, and accounts payable totaled about 2.86 billion yuan.

According to the announcement, after the completion of the transaction, Zhonghong Co., Ltd. was able to obtain a cash and liabilities reduction of 81.92 million yuan, which was paid by Jiazhao after being offset by creditor's debts, and an increase of 1.03 billion investment income.

Zhonghong’s creditors, China Huarong and Bank of Beijing, have previously sent a letter to Zhonghong, saying that they welcome the acquisition of Ruyi Island by Kaisa.
Kaisa'a Good Fortune

The announcement shows that the two parties finally agreed that Kaisa will only need to pay 73 million yuan in cash and assume the debt of Ruyi Island 7.461 billion yuan.

With nearly 7.5 billion for a "semi-finished" island, it is clear that Kaisa has a longer-term plan. In comparison with Kaisa in the first half of 2014, the joint venture of Fude Life Life won a 168,800 square meters Dapeng Peninsula tourism project in Shenzhen at a price of 5.4 billion yuan. The Ruyi Island deal is still comparatively impressive.

Kaisa has taken over the island of Ruyi and played cultural tourism industry scheme.

As early as 2013, Kaisa started a diversification strategy. After several years of development, it has been involved in more than 20 vertical areas such as asset management, commercial operations and tourism industry. Among them, Kaisa has a deep layout in the tourism industry. On the one hand, it develops large-scale comprehensive tourism and holiday products; on the other hand, it uses resources in new technology, great health, cultural and sports tourism, etc., based on the "industry + urbanization + tourism" model, with the Pearl River Delta, the Yangtze River Delta, and the Bohai Sea. The focus of the project layout will accelerate the market of the characteristic small town.
Kaisa has rapid expansion plans:
However, for the huge investment projects, Kaisa has to focus more on capital, cash flow and financing. As of the end of 2017, Kaisa Group's asset-liability ratio reached 85.94%, total borrowings were 111.173 billion yuan, and the weighted average financing cost of interest-bearing liabilities was 8.27%.

Kaisa Group set its sales target for 2018 to 70 billion yuan, a 56% increase from last year's sales. It also announced that it will sprint 100 billion targets within three years.

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