How to solve the difficulties of the real estate enterprises in danger?

  China News Weekly reporter/Chen Weishan

  Published in the 1050th issue of "China News Weekly" magazine in 2022.7.4

  "Recently, Shanghai Greenland Group announced to seek opinions on the bond extension due on June 25. This is the only state-owned enterprise among the top 50 real estate companies that has announced bond extension or default. Although the number is actually small, the shock to the market is relatively small. Big. Because in the past, default or extension, which is what we usually call thunderstorms, are basically private real estate companies. This time, a similar situation has occurred in local state-owned enterprises, and the shock to the market is relatively large, indicating the risk of real estate It’s not over yet.” Sheng Songcheng, a professor of economics and finance at China Europe International Business School and former director of the Investigation and Statistics Department of the People’s Bank of China, talked about the debt risks faced by real estate companies in a recent public speech. It is still relatively large, especially for private housing companies, and only a few companies with relatively good financial indicators have received credit support.”

  Despite several calls from the regulators, the situation on the financing side of housing companies has not improved. Taking bond financing as an example, data from Huatai Securities Research Report shows that in the first four months of this year, housing companies issued domestic bonds of about 195 billion yuan, a year-on-year decrease of over 40% , the overseas bond issuance was about 45.6 billion yuan, a year-on-year decrease of nearly 70%.

Moreover, domestic bond-issuing real estate enterprises are mainly state-owned enterprises, and private real estate enterprises account for only 7%, not to mention a large number of private real estate enterprises that have been at risk.

  Financing channels have not yet been opened, and the indifference of the real estate market has restricted the strength of real estate companies to collect money from sales. Under the attack, the number of new insurance companies in the top 100 real estate companies this year has not declined, but the number in the first five months has increased month-on-month. .

  In the second quarter, a large number of real estate companies' dollar bonds matured, becoming another risk point.

The out-of-risk real estate companies represented by Evergrande are practicing the strategy of "exchanging time for space", hoping to keep bonds from defaulting through debt rollovers.

However, financing is tight and sales are weak. Last year, the self-help strategy of “guaranteing and handing over the building” for resumption of work and production, as represented by Evergrande, is still difficult. Some projects have a large funding gap and are in urgent need of external blood transfusion rescue. However, in the current market environment Under the circumstance, external blood transfusion is also quite cautious.

  In fact, there are far more than one out-of-risk real estate company facing the "Evergrande-style dilemma".

  "Just waiting"

  At the end of June, Lang Xing received a letter of reminder from Evergrande's subordinate property company. He is the owner of Kaifeng Zhengkai Evergrande Future City. Since July 1 last year, he has not paid the property service fee for a year.

Lang Xing, who received the reminder letter, asked the property staff, "Do you know how much Evergrande owes me?"

  The company where Lang Xing acts as a legal person is a supplier to Evergrande. The company has cooperated for more than 7 years. At present, the total amount of commercial bills and payables owed exceeds 2 million yuan. This amount is not much among many suppliers, but it is enough for him. Collapse, on the first day of the new year this year, he spent in the Evergrande project company, hoping that the other party will pay some arrears.

He finally found that all he could do was wait, and he was not the only one who was equally helpless.

  Recently, an investor's liquidation petition has pushed Evergrande, which is in the process of debt restructuring, to the top.

  On June 27, a strategic investor of Evergrande RV Bao filed an application with the Hong Kong court, asking Evergrande to liquidate.

On June 28, Evergrande responded to the winding-up petition filed by the creditors recently, saying that it strongly opposed the above-mentioned petition, and it is expected that the petition will not affect the company's restructuring plan or timetable.

Up to now, China Evergrande has officially defaulted on 13 US dollar debts totaling approximately US$19.285 billion.

This operation will make it more difficult for Evergrande to resume trading, and it will also have an impact on the resumption of construction of Evergrande projects.

In response to this application, the Hong Kong court will hold a hearing on August 31 to investigate the matter, and it does not rule out that more creditors may file a winding-up petition in the future.

  From the end of April to May this year, Evergrande ushered in a wave of domestic bond repayment peaks. At the end of April, Evergrande Real Estate held three bondholder meetings within 5 days in succession, and reviewed and voted on “19 Evergrande 01” and “21” respectively. Evergrande 01" interest payment extension proposal and "19 Evergrande 02" principal and interest payment extension proposal.

  In fact, it is not individual housing companies that face the pressure of payment.

In June 2022, real estate companies ushered in another wave of debt repayment, with 44 bonds due that month, totaling about 63.9 billion yuan.

According to statistics from the Crier Research Center, from June to July this year, the domestic and overseas debts of 200 core real estate companies were about 175.5 billion yuan, of which private real estate companies accounted for 67%.

In June, four overseas senior notes due from Kaisa, one senior note due from Xinli Real Estate and one overseas debt of China Fortune Land Development have defaulted on interest.

  As the main body of Evergrande's domestic bond issuance, Evergrande Real Estate has a total of 13 existing bonds, with a total existing scale of 55.853 billion yuan, and no bond has yet defaulted.

Evergrande hopes to ensure that domestic bonds do not default through the extension. On March 22, Evergrande held a global creditor conference call. Executive Director Xiao En said that China Evergrande is actively communicating with domestic creditors to maintain overall stability. Domestic open market bonds The exhibition work is progressing in an orderly manner.

  Rollover and offer redemption have become the main ways for housing companies to relieve debt pressure. According to CICC statistics, in the first five months of 2022, real estate has rolled over 22 domestic debts.

There are also real estate companies who have made exchange offers to investors when there is no hope of extending the period.

As of the beginning of June, real estate companies have issued a total of 26 new US dollar bonds this year, of which 16 are exchange offers, accounting for 61.5%.

  For Evergrande, the bond extension is to buy time for the introduction of the debt restructuring plan. On June 20, China Evergrande Group once again confirmed in the announcement that it will announce the debt restructuring plan at the end of July.

  Evergrande's debt consists of three parts: unpaid business bills represented by suppliers, unpaid wealth products, namely wealth management, and loans from financial institutions.

A number of holders of large wealth products told China News Weekly that after the Spring Festival this year, they can receive 8,000 yuan of redemption funds every month.

  On the day that Evergrande Real Estate sought the "15 Evergrande 03" exhibition period, Zhang Yun did not attend an online trial until nearly noon. The marketing company she runs became a supplier of Evergrande in 2015, and currently holds unpaid Evergrande merchants. Tickets nearly 30 million yuan.

As early as September 2021, the company has filed a lawsuit against overdue commercial bills. At that time, the cases involving Evergrande commercial bills had to be transferred to the Guangzhou Intermediate People’s Court for centralized jurisdiction. The court will have to wait."

  In April and May of this year, the requirements for centralized jurisdiction have been loosened, and ticket holders can sue in the court where the drawer, the location of the Evergrande project company, is located, which gives Zhang Yun hope.

Since most of the projects she participated in were in Henan, in June, she successively filed lawsuits in courts all over Henan, and more than a dozen cases have been held intensively.

  Zhang Yun's company holds hundreds of Evergrande commercial bills, some of which are only a few thousand yuan in smaller denominations. It started to be overdue in July last year, and it has been a year since Zhang Yun has not waited for the redemption plan. The only way she can sue is to sue. The number of civil lawsuits corresponding to hundreds of commercial bills is also not small.

"It took a whole year to make no money, but to pay court fees, attorney fees, etc."

  Zhang Yun's branches in Henan prefectures have all been dissolved. In May of this year, the Shaanxi provincial branch was also unable to support it. "We can only promise to help employees pay five insurances and one housing fund until the end of this year as compensation."

There are only about 10 people left in the headquarters in Zhengzhou. She deliberately left a legal counsel to be responsible for the follow-up litigation. The number of employees in her company once exceeded 300.

  Of course, even if Zhang Yun gets a court judgment, it does not mean that the debt can be paid off.

  Shi Jiang, who has participated in many Evergrande projects in Jiangsu and Zhejiang, is carefully searching for the accounts of the Evergrande project company except the supervised account. He hopes to find assets that can be disposed of by the court. After discovering several bank accounts of the Evergrande project company, and among them After having 300,000 yuan, he hurriedly called the judge and hoped that the court would give priority to the execution of this part of the assets and respond to the need for his company to pay wages.

  Including commercial bills and outstanding payments, Evergrande owes Shi Jiang’s company more than 16 million yuan, and he is the group of Evergrande suppliers who sued earlier, “Between June and July 2021, before Evergrande officially exploded. , a civil lawsuit has been filed for all the arrears, and the court judgment has been made, but there are still problems in the enforcement process.”

  After the explosion of Evergrande, all project funds in various places were included in the government supervision account, which was given priority to "guarantee the delivery of the building", and the old account was suspended. Even for a supplier like Shi Jiang who has already obtained a court judgment, the court cannot enforce the supervision account. funds in.

  A judge who made the relevant judgment told China News Weekly that even if the court has frozen the custody account, it cannot be enforced. He is also concerned about the resumption of work and production of the project involved in the lawsuit. ”, that is, after the developer handles the initial confirmation and registration of the real estate ownership according to the regulations, and after receiving the “Real Estate Ownership Certificate”, if there is still a balance in the supervision account, the court can dispose of it.

"At present, the funds in the supervision account can only be used for the funds required for 'guaranteeing the handover' under the supervision of the local government's housing and construction department. This rule applies not only to Evergrande, but also to other housing companies that are out of danger."

  Obviously, the capital demand for "guaranteing the building" is placed in a more important position, but this also means that small and medium-sized enterprises such as Lang Xing, Zhang Yun, and Shijiang may be ahead of, or already ahead of, the insurance companies like Evergrande. fall down.

Suppliers can only wait for the resumption of work and production to ensure the delivery of the building. However, because the old accounts cannot be settled, the suppliers have little interest in participating in the “guaranteed delivery”, or are unable to pay in advance, and their enthusiasm is limited.

  Embarrassing "guarantee handover"

  "The longest overdue commercial ticket expired at the end of March last year with a face value of more than 400,000 yuan." Guo Zhou told China News Weekly that the arrears involved Evergrande's projects in Hubei, and no payment plan has been given so far. "The project company really has no money. At present, the local government has set up a special work class, and the strategy adopted is to 'close new accounts and hang old accounts', that is, ignore the 'old accounts' that have been arrears, and fully settle the 'new accounts' generated by 'guaranteeing the building' '".

  A member of the government work special class told reporters bluntly: At present, the main focus is "guaranteing the handover of the building". As for the existing debt, there is no money or energy to deal with it.

  Whether in Evergrande's self-rescue strategy or in the target list of the regulatory authorities, "guaranteing the delivery of buildings" is at the top of the list.

  At the special meeting on resumption of work and production held in late October last year, Xu Jiayin announced his self-help strategy for the first time.

Evergrande has repeatedly emphasized the importance of resuming work and production and ensuring the delivery of buildings. This time, Xu Jiayin re-emphasized that only by resuming work and production, sales and operations, can the building be delivered to the owner with quality and quantity, and the commercial tickets of upstream and downstream partners can be resolved. Only by redemption can we complete the redemption of wealth products and gradually repay the loans of financial institutions.

  At the press conference of the State Council Information Office after the Spring Festival this year, Wang Menghui, the then Minister of Housing and Urban-Rural Development, also stated that the overdue delivery risk of individual real estate enterprises should be resolutely and forcefully dealt with, and the primary goal should be to "guarantee the delivery of buildings, people's livelihood, and stability".

  The official data released by Evergrande in early April showed that as of March 27, Evergrande Group had resumed work on 734 projects, with a resumption rate of 95%.

Among them, 424 projects have returned to normal construction levels, accounting for 55%.

The total number of people who have resumed work nationwide has reached 154,000.

  However, under the strategy of "closing new accounts and hanging old accounts", the progress of some Evergrande projects to resume production and ensure the delivery of buildings is still unspeakably optimistic.

  "If only five or six workers are working on a 'guaranteed building' project, can this be called resumption of work and production? If this is also considered to be resumption of work and production, when will the project be completed?" A Henan supplier of Evergrande told reporters , more than 80% of the projects he is involved in are "abnormal resumption of work and production", "there may be many people on the site of the resumption of work and production conference, but only a few workers are actually working on the site."

  The partners chosen by Evergrande when "guaranteeing the handover" are more original suppliers.

At the end of 2021, Evergrande found Zhang Yun and hoped that her company would participate in the "guaranteed handover" of the Xinzheng Yuelongwan project. The business involved in Zhang Yun's company is an indispensable link before handing over the house to the owner. Later, the newly incurred costs were re-signed with a three-month contract and settled in cash. However, the project manager admitted that it is still unknown whether he can get the project payment after three months, and the project still owes the company more than 600,000 yuan.”

Zhang Yun did not participate in the "guarantee handover" in the end.

  On the evening of June 22, a project company of a state-owned real estate developer called Zhang Yun, hoping that she could undertake the "guarantee delivery" business of a certain project. The payment period stipulated in the contract is as long as 8 to 12 months.

After inquiring about the credit rating of the real estate developer, Zhang Yun directly rejected the door-to-door business, without even giving a quotation, "I dare not undertake other projects that promise a 3-month payment cycle, let alone 8-12 months. ".

  Even if some suppliers participate in the "guaranteed handover", the progress of the project is not normal.

Although Evergrande still owes nearly 16 million yuan in construction funds, Zhang Nan told China News Weekly that it was really helpless for his company to start participating in some "guaranteed handover" projects last year, because his company had already "wasted it in" "Previously, the company has been participating in the project construction as a subcontractor of a listed construction company. After the explosion of Evergrande, the listed company withdrew. As the actual contractor of the project, the project was halfway through, and even the amount of the project could not be calculated, and the accounts were not It may be settled, so it is only possible to complete it as much as possible.”

  But he admitted frankly that after Evergrande exploded, participating in the "guarantee handover" as the actual contractor was more of a formality.

"It is necessary to settle the project payment at any time, otherwise the construction will be suspended again after a period of time, such as a month of work, which will form a certain output value. If the settlement cannot be settled in time, the construction will be suspended, because each other has lost trust. And 'guaranteeing the building' not only involves the construction party , It also involves many parties such as material suppliers. If the materials are not in place, there is no condition for construction, and the supplier has been delayed very badly. For example, the general contractor of a project often faces thousands of legal lawsuits due to arrears, which also leads to 'guarantee' The efficiency of handover is relatively low.”

  This dilemma involves the sufficiency of funds for "guaranteeing the property".

After Evergrande's accident in 2021, local governments have set up special work classes under the housing construction department, and their role is to strictly control the expenditure of supervision accounts. "The expenditure of supervision accounts is no longer determined by Evergrande, but has to The government is at this level to prevent higher-level companies from drawing funds away.”

However, the funds in some supervised accounts are obviously not enough to support the "guaranteed handover".

  Zhang Nan told reporters for example that the company's output value of a project in Evergrande has reached 80 million to 90 million yuan, and there are still unsettled construction funds. After participating in the "guarantee handover" work last year, the payment progress is very fast. Slow, only paid less than 2 million yuan in total.

According to his estimation, Evergrande still needs hundreds of millions of yuan to complete the "guaranteed handover" of this project.

  Someone close to Evergrande Hubei Branch told China News Weekly that, taking Evergrande’s three projects in a prefecture-level city in Hubei as an example, the progress of the three projects was different when Evergrande exploded in 2021. At the end of last year, the government I took over and found that there is still a funding gap of about 1.1 billion yuan for the three projects to be completed. Even if some of the garages that have been built are sold, the funding gap will still be 8.9 billion yuan, and the old accounts of the project are not included, but there are only 3,000 remaining in the pre-sale fund supervision account. more than ten thousand yuan.

  "Even the more than 30 million yuan is being spent successively, including to several general contractors. One of the projects has paid millions of dollars to the contractors, but the contractors are more symbolic to send workers to the construction site to beat them. Hit and turn the tower crane." According to him, two of Evergrande's three local projects are in shutdown or semi-shutdown state, and the government is making every effort to keep the third project's first-phase delivery. "It was originally planned to be completed on May 30. The building has been handed over, but the construction period has been extended, and it is currently planned to hand over the building in September.”

  Obviously, the progress of resumption of work and production and the delivery of buildings depends to a large extent on the amount of funds in the supervision account, and the resumption of work and production is facing financial pressure.

  According to a copy of Evergrande Jiangsu's "First Floor One Policy Plan for Startup Projects" obtained by a reporter from "China News Weekly", the current balance of the pre-sale supervision account for the startup project is 300 million yuan, even if the 777 million yuan has been sold but not paid back, As well as the follow-up value of the buildings that have been collected but not sold, it still cannot cover the unpaid items, unpaid commercial bills, and various expenditures before the completion of the handover, totaling 2.9 billion yuan.

To achieve self-balance, it is necessary to obtain evidence and sales of buildings under construction without evidence. To complete this part of the project, it still needs to spend 2.56 billion yuan. After resumption of work, 50 million yuan will be paid every month.

The financial pressure is evident here.

  "The company proposed 'guaranteing the handover' last year, but the progress of progress varies in different provinces, cities, and even between different projects. Some areas with greater progress may take the form of state-owned assets or other funds to save the project. Live projects.” The aforementioned person close to Evergrande’s Hubei branch told reporters that, for example, comparing Hubei and Hunan, Hubei’s efforts to promote “guaranteed handovers” are weaker than Hunan’s. “Even in Hubei, the balance in some project supervision accounts is relatively high. If sufficient, the speed of progress will be faster, but some projects require government coordination to realize the realization of only assets, such as sales, mortgage parking spaces, residences, etc.

  He told reporters frankly that now the government has come forward to provide guarantees, such as special funds for exclusive use, and then release development loans. The later funding problem is still easy to solve, but there is a funding gap for the houses that have been sold and handed over. Find the receiver."

  The “One Policy Plan for the First Floor of the Launching Project” describes the financial dilemma faced by the suspended project as “no new financing and loans, and the situation of severe sales decline.” Obviously, compared with relying only on sales receipts and asset sales to raise funds, Evergrande has The real estate companies that are in danger will undoubtedly expect a "white knight" to take over, bringing in incremental funds.

  Where is the difficulty in solving "item by item"

  As early as January this year, due to the pressure of "guaranteeing the construction", Evergrande transferred the equity of some project companies held by Evergrande. Within half a year, the equity transfers occurred sporadically in the project companies, and the transferees were mostly project funders and local state-owned assets.

  On January 13, 100% equity of Kunming Hengtuo Real Estate Co., Ltd. (hereinafter referred to as "Hengtuo Real Estate") was transferred by Evergrande Real Estate Kunming Co., Ltd. to Minmetals International Trust Co., Ltd. (hereinafter referred to as "Minmetals Trust").

As early as September 2020, 100% of the equity of Hengtuo Real Estate was pledged to Minmetals Trust, and this equity transfer is considered to be "repaying debt with shares".

  The Evergrande Linxi County project under Hengtuo Real Estate started construction after half a month of winning the plot at a price of 689 million yuan in April 2020. It will be launched for the first time in May 2021. The unit price of a hardcover room is about 11,000 yuan/square meter.

But the project was suspended in September of that year, and 7 of the 17 planned residences have been capped.

  A person close to the project told China News Weekly that the general contractor of the project construction was Jiangsu Construction Engineering Group Co., Ltd. In early November, the construction party locked the gate of the construction site and prohibited anyone from entering or leaving.

At that time, except for a small part of the main structure of the project, most of the rest of the main body had been completed, with a total output value of about 254 million yuan. The project construction cost was basically paid in the form of commercial bills, and the unpaid commercial bills reached 43.06 million yuan and were in arrears. The progress payment is 121 million yuan.

  This is not the only project company equity transferred by Minmetals Trust.

At the end of February, it announced that the company signed a cooperation agreement with China Everbright Trust and Minmetals Trust to sell the relevant equity interests of its four projects to the two trust institutions.

Previously, the two trust institutions were shareholders of the four project companies.

  This announcement also clarifies the cooperation model after the trust company takes over. The two trust institutions invest all the funds needed for development and construction according to actual needs, and Evergrande does not need to invest any additional funds in the project company.

Proceeds from the sales of related projects are used to settle the short-term operation and liabilities payable of the project company on the one hand, and to repay the funds invested in the project before and after the trust institution takes over.

If there is a surplus of the proceeds, it will be used to repay China Evergrande's previous capital investment.

  In other words, after the trust company takes over, it will still guarantee the repayment of the trust company's investment, and then deal with the old accounts if there are remaining funds.

A creditor of the project told reporters that Minmetals Trust had indeed checked the debt situation with it before the equity transfer, but did not provide a debt repayment plan.

  At the global creditor conference call held on March 22, some creditors asked whether the company will continue to use the "equity transfer + custody operation" model to revitalize domestic real estate projects in the future?

Liang Senlin, non-executive director of Evergrande, said that under the current situation of tight liquidity of the company, the above model is a realistic choice to maintain orderly operation of the company and protect the legitimate rights and interests of all parties. The recovered funds will be used to ensure the construction and delivery of other domestic projects of the company. Building, the follow-up company will do its best to continue to promote the resumption of work and production.

  Some Evergrande creditors analyzed to reporters that the assets acquired by the trust company are relatively high-quality, located in Guangzhou, Foshan, Dongguan and other places, and there are follow-up assets for disposal. For example, when Minmetals Trust took over Hengtuo Real Estate, only 5 of the 17 residential buildings were Building obtained a pre-sale license.

  Liu Shui, head of research at the Enterprise Division of the China Finger Research Institute, told China News Weekly that among the plans to resolve risks in various places, "financial institution mergers and acquisitions + agency construction" is a more feasible approach.

It is more difficult for enterprises to resume work and production on their own. The risk-emergent enterprises themselves lack funds, and without incremental funds, it is difficult for the project to continue construction.

In the model of "merger and acquisition by financial institutions + agency construction", financial institutions acquire and acquire the projects of risk-taking companies, provide financial support for the projects, and entrust real estate development companies with strong operating capabilities to manage the construction on their behalf, so that the project can be successfully resumed and completed. Protect the rights and interests of financial institutions, home buyers and other parties.

  But whether financial institutions can recover their investment depends to a large extent on project sales.

  According to the data disclosed by Evergrande in May, its contracted sales in April were 3.09 billion yuan, which is a significant increase from the monthly sales of 20 million to 30 million yuan from September last year to March this year, but compared with last year. The contracted sales of 68.1 billion yuan in a single month before the accident in September were still far from each other.

"Without sales, it is impossible to get out of the predicament and pay off the debt." Xu Jiayin said.

  Obviously, the current downturn in the real estate market has hindered financial institutions from assisting real estate companies to resolve the debt crisis.

  In April this year, regulators provided asset management companies (AMC) with a list of 12 real estate companies, including: Evergrande, Shimao, Sunac, Ronshine, Kaisa, Zhongliang, Zhongnan Construction, Greenland, Aoyuan, Rongsheng, Sunshine City, R&F, so that the national AMCs can participate in the rescue of housing enterprises.

  Zhao Limin, vice president of Cinda Assets, is one of the seven members of the Evergrande Risk Resolution Committee established last year.

Since the beginning of this year, AMCs such as Great Wall Assets and Huarong Assets have also successively reached cooperation with real estate companies such as Kaisa and Zhongnan Construction. For example, Huarong Assets said that it will cooperate with local state-owned assets to bail out Zhongnan Construction, and will promote the resumption of production and production of projects under construction and mergers and acquisitions of high-quality projects. , revitalize cooperation projects, etc. to carry out business.

However, no specific cooperation projects and modes have been announced so far.

  Liu Shui's analysis believes that both the insurance company and AMC have concerns.

First, insurance companies are reluctant to touch core high-quality assets prematurely.

If you are eager to sell the project now, firstly, the assets may be priced down, the funds returned will be lower than expected, and the valuation of the inventory in hand will also be affected; secondly, according to the policy guidance, high-quality assets will be sold first, and the quality of the remaining assets will not be high, which is not conducive to Maintaining the operation in the later period, although the current financial risks are alleviated, new operational risks are added in the long run.

Second, AMC is more cautious about project mergers and acquisitions.

At present, the real estate market is still undergoing in-depth adjustment, and the debt structure of some insurance companies' projects is relatively complex. AMC has improved its evaluation standards for M&A projects, focusing on risk prevention and control.

  For the financial difficulties faced by real estate companies, Sheng Songcheng suggested to support the acquisition of real estate projects.

In 2021, 20% of the country's real estate projects will be jointly developed by a number of real estate companies.

This means that there is a risk in a company or project, and cooperative housing companies will inevitably be affected.

"If we can acquire risk-prone projects or difficult housing companies through high-quality companies, we can control risks within a certain range, which is also conducive to the stability of the entire industry and society."

  (Lang Xing, Zhang Yun, Shi Jiang, Guo Zhou and Zhang Nan are all pseudonyms in the text)

  "China News Weekly" Issue 24, 2022

  Statement: The publication of "China News Weekly" manuscripts is authorized in writing