Worries Over Indebted Developer as Govt Restrains Housing Market

Developers rolled in profits in the first part of 2019, but debt levels remain high and the government crackdown on home prices could cool the industry in the second half of the year.

This article focuses on Beijing Capital Development. The firm cleared 100 billion yuan in sales in 2018, but it has a very high debt ratio.

In the Sogou translation below, "The First Shares" is a mistranslation of 首开股, Beijing Capital Development.

iFeng: 楼市调控刷屏：高负债房企存隐忧 京城“地产一哥”净负债率超180%
Sogou: High Debt Housing Enterprises Exist Hidden Worries Beijing Real Estate First Brother Opens First Net Debt Ratio Over 180%

Hundreds of Billions of Sales Can't Cover Hidden Worries of High Debt

In 2018, the first shares entered the ranks of 100 billion housing enterprises for the first time.

According to the data, in 2018, the first-time shares achieved a total contracted area of 3.7756 million square meters, up 27.97% year on year. The contracted amount was 100.727 billion yuan, up 45.58% year on year.

In the first quarter of this year and the first half of this year, the first shares still maintained the momentum of last year. The company announced that in the first half of 2019, the company realized 40.39 billion yuan in sales revenue.

However, whether the sharp increase in sales can ease the company's high debt ratio still worries the market.

In fact, throughout 2018, the asset-liability ratio of the first shares has increased. According to the annual report, in 2018, the asset-liability ratio of the first joint-stock company was 81.58%, an increase of 0.97 percentage points over the previous period, with a net debt ratio of 166.33%.

According to Wind data, the asset-liability ratio of the first shares in the first quarter of this year was 81.40%, and the net debt ratio was more than 180.70%, far higher than the regional housing enterprises such as Beijing urban construction, beichen industry and Beijing energy real estate, and far higher than the industry average.

Data show that Vanke's net debt ratio was only 31.66% in 2018, the leading real estate industry.

"In 2018, the asset-liability ratio of real estate listed companies remained high. The average asset-liability ratios of Shanghai, Shenzhen and mainland real estate listed companies in Hong Kong were 69.03% and 75.16% respectively, up 0.65 and 0.81 percentage points from the previous year." The TOP10 Research Report of Listed Housing Enterprises of China Index Research Institute shows that due to the good sales performance in 2018, the average effective asset-liability ratio of listed housing enterprises is 50.32% and 56.70%.

Compared with the above data, it can be seen that the debt ratio of first-time shares is obviously too high in both Beijing region and all listed housing enterprises, and there are considerable hidden worries.

As a matter of fact, the issue of first opening shares has attracted more attention in the market. Reporters noted that the first shares also admitted frankly in a recently released clarification announcement about a media report: the company's net debt ratio is at a relatively high level in the industry, and improving the structure of assets and liabilities will be a major concern of the company in the future and need to be effectively solved.

"Borrowing the New and Returning the Old" is under great pressure

In the context of the policy of "no speculation in housing", the sales of real estate companies are expected to slow down in the second half of the year as a whole. It is quite difficult for the initial shares to continue to grow significantly, which will tighten their capital chain and increase the pressure of "borrowing new and returning old".

The reporter noticed that the sales volume of the first stock plan in 2019 was the same as that in 2018, and the target was 100 billion yuan, which meant that the company's sales growth slowed down significantly. Data show that the company's inventory turnover rate was only 0.03 in the first quarter, far lower than last year's annual report of 0.17.


At the same time, the company's financing pressure is prominent. At the end of May, the company announced that it had raised 2.25 billion yuan through two rounds of financing. At the beginning of July, the first shares announced that the company plans to issue corporate bonds not exceeding 6 billion yuan in private to repay loans from financial institutions or for other purposes.

Some people in the industry pointed out that the relatively high operating mode of the joint venture project of the first real estate has also restricted its performance. Data show that 14 of the 16 parcels of land acquired by the first share in 2017 are jointly owned land. In 2018, the first shares directly took part in winning 6 homesteads, of which 5 were jointly owned.

Coincidentally, the company recently gave a set of data in the above clarification announcement: as of the end of 2018, there were about 170 subordinate enterprises with initial shares, of which more than 60% were cooperative and joint venture project companies.

In this regard, some analysts pointed out that joint land acquisition also puts enterprises in the dilemma of declining equity ratio, low gross profit and weak initiative. This may be one of the reasons why the gross profit rate and net profit rate of the first shares sold in 2017 and 2018 are obviously lower than the average level of mainstream listed housing enterprises. In the long run, it is not conducive to the sustainable development of enterprises.