Bid Farewell To Shenzhen Real Estate, Evergrande Seeks To Split And Go Public To Reduce Debt

A real estate company a has a deep abortion for more than 4 years, and its real estate business has been suspended for the longest time.

In the past month or so, it is not expected that Evergrande and Shenzhen housing a announced the termination of restructuring at the same time on November 8 due to the debt turmoil of Evergrande and the subsequent war of equity swap.

Behind this is the continuous tightening of real estate financing and the trend of real estate deleveraging remains unchanged. In the past five years, with the exception of a small number of state-owned enterprises and central enterprises, there has been no breakthrough in the refinancing of real estate enterprises in a shares.

On November 9, Shenzhen real estate a, which resumed trading, closed at a price limit, while China Evergrande, a Hong Kong stock company, closed up 2.18%.

As one of the most tense real estate enterprises in the capital and gold chain under the "three red lines", Evergrande has not been listed on the back door, but its debt reduction cannot be stopped. As early as the beginning of the year, Xu Jiayin, chairman of Evergrande, set the keynote of reducing liabilities as the core task of this year. Through the means of allotment of shares, resale of shares, and split listing, Evergrande has vigorously raised funds to repay debts in recent months. However, the most fundamental method of debt repayment is still to generate cash flow through quick sales and payment.

People close to Evergrande said that Evergrande hopes to meet at least one of the "three red lines" in a relatively short period of time.

Behind the termination of reorganization

In October 2016, Evergrande signed a restructuring agreement with Shenzhen real estate a, and planned to backdoor listing and return to a shares. About eight months later, Evergrande withdrew from the competition of Wanbao with a huge loss of 7 billion yuan and transferred its shares to Shenzhen railway.

For the restructuring, investors once gave optimistic expectations. From 2017 to 2018, Evergrande real estate introduced three rounds of 130 billion war investment, with the highest valuation of 400 billion, surpassing Vanke.

However, since then, the real estate refinancing continued to tighten. Shenzhen real estate a has been suspended, and announced several times that the restructuring has been delayed. This drag lasted for more than four years, and the listing expected by the war investors also fell short.

With the passage of time, many market participants believe that the restructuring failure of Evergrande and Shenzhen real estate a has been expected, only to prove once again that the A-share real estate refinancing defense is tight.

The A-share refinancing of real estate companies includes issuance of additional shares, rights issue, backdoor listing, issuance of convertible bonds, etc. since the tightening in 2015, it has almost never been liberalized. Even if the real estate enterprises spin off sub businesses to be listed, such as property, commerce, long-term rent, etc., and want to be listed in a shares, it is still very difficult for them to be related to real estate.

In the past few years, there are only a handful of real estate companies refinancing in A-share market, and only one has backdoor listing. In April 2015, the restructuring of Jinfeng investment and Greenland Group was conditionally approved by China Securities Regulatory Commission. Four months later, Greenland holdings was listed on the back door.

In recent years, the case of fixed increase is also very rare. So far, Yuecheng Real Estate Co., Ltd. has only successfully raised 2.4 billion shares in early 2018, and this is the only case in which Yuecheng Real Estate Co., Ltd. has raised 9 billion shares so far.

In September this year, Ping An announced that it would withdraw from the 3.5 billion fixed capital increase of China Merchants Shekou and purchase 24% equity of Nanyou group. Market participants believe that this is also the performance of real estate refinancing is still strictly controlled.

A-share listing, financing hopeless, real estate companies have to go to Hong Kong listing. According to the data, 12 real estate enterprises went to Hong Kong for IPO in 2018 and 13 in 2019. Since this year, more than 10 real estate enterprises have submitted applications for listing in Hong Kong, which does not include the situation of spin off property listing.

The developers (including the developers who have been listed for several years) have not been supported by the regulators.

According to people close to the regulation, real estate financing has been fully tightened since June 2019, whether it is credit, overseas bond issuance, real estate trust or other non-standard financing, let alone A-share listing. On August 20, the central bank and the Ministry of housing and urban rural development jointly informed the real estate enterprises to launch the "three red lines" new regulations to further quantify the financing constraints.

Yan Yuejin, research director of the think tank center of E-House Research Institute, believes that for Evergrande, early settlement of the long-standing issue of Shenfang A is also considered as the landing of boots. A shares still have a good chance to return to the market in the future.

Fancy debt reduction

For Evergrande, the reorganization was only terminated in November.

Prior to that, Evergrande's main pressure came from the wager agreement of Hutchison: if it fails to list before January 31, 2021, it will have to redeem all its shares. In the past month or more, Evergrande has basically solved this problem and temporarily eased the financial pressure.

According to the announcement on November 8, 86.3 billion of Evergrande's 130 billion war capital has been transferred to shareholders; 35.7 billion war investment has been negotiated and a supplementary agreement is about to be signed; 5 billion war investment is under negotiation due to asset restructuring involving its own major shareholders; Evergrande group has paid the remaining 3 billion war capital and is about to buy back.

After the urgent and dangerous "mines" are removed, Evergrande will still face long-term debt repayment and financial restructuring pressure. Therefore, Evergrande, which is facing the "battle of life and death" this year, is sparing no effort to recover its funds and reduce its liabilities.

In line with the idea of converting war investment into shares, the transfer of equity assets is an important measure for Evergrande to further ease the debt pressure.

Since September, Evergrande has split and transferred its old property shares, and introduced a HK $23.5 billion war investment, including Ma Yun, Ma Huateng, etc., for which Xu Jiayin transferred about 30% of the equity of Evergrande property.

New energy vehicles, which have invested heavily in the past, are also selling shares. On November 1, Evergrande health (auto) transferred its 40.964% equity of Guanghui group to Shenneng group, with a total amount of RMB 14.85 billion. Guanghui was bought by Evergrande two years ago. Its main business includes automobile sales, etc.

At the level of group company, Evergrande has also carried out share allotment. On October 14, China Evergrande announced that it would allocate and issue up to 2.629 billion new shares, with an estimated net amount of financing of about HK $4.256 billion. The investor lineup was luxurious, including vanguard, the world's largest public offering fund, Norges bank, the sovereign fund of Norway's central bank.

After the completion of the equity financing, Xu Jiayin's family's shareholding in China Evergrande will be diluted from 77.78% to 76.26%.

According to the statistics, Evergrande's equity transfer has relieved the pressure of more than 140 billion assets.

In addition, Evergrande has also split its assets and listed on the stock market, which is expected to raise more funds. Evergrande motor intends to list on the science and technology innovation board, and the preparatory work is in full swing. Evergrande property has also submitted an application for listing to the Hong Kong stock exchange, and the market expects that Evergrande property will raise more than $1 billion.

According to Xia Haijun, President of Evergrande, once Evergrande property is listed, the net debt ratio of China Evergrande will drop by 19%.

In addition, the sales return will become the biggest chip for Evergrande to reduce its liabilities.

In the property market of the past, Evergrande launched a nationwide real estate discount, with sales of 180 billion yuan in two months and a return of 135.85 billion yuan.

From January to October this year, Evergrande's accumulated sales of 632.59 billion yuan, which has exceeded the sales volume of 601.06 billion yuan in the whole year of last year, and achieved 97.3% of the annual target of 650 billion yuan; the accumulated sales revenue was 530.74 billion yuan, exceeding 471.5 billion yuan of the whole year of last year.

According to the current sales rate, Evergrande may exceed the annual sales target of 650 billion yuan, and is expected to sprint towards the 800 billion yuan internal control target.

As of September 24, Evergrande's interest bearing liabilities had decreased by about 53.4 billion compared with the end of March, and a total of 43.5 billion loans due after September 25 were returned in advance.

At the performance meeting in March, Xu Jiayin said that in the next three years, Evergrande's interest bearing liabilities will decrease by an average of 150 billion yuan per year, and the debt ratio will reach the low and medium level in the industry by 2022.