"Three Red Lines" After The First Round Of Real Estate Enterprises Delisting Alarm

At the end of January this year, due to poor financial indicators, Lvjing holdings, China Real Estate Co., Ltd. and Yunnan Urban Investment Co., Ltd. were successively warned of delisting risks. This is also the first batch of real estate enterprises to encounter delisting risk since the introduction of the "three red lines" management policy. In other words, if the annual report performance is really unsatisfactory, the three real estate enterprises will wear the "hat" of St.

On the surface, the reason why the three companies encounter delisting risks lies in the new delisting rules implemented in December last year. But behind this is the survival dilemma of small and medium-sized real estate enterprises under the background of stricter supervision and increasingly fierce competition.

The sales amount and revenue of these three real estate enterprises are outside the top 100 on average. In recent years, the three enterprises are implementing transformation, but the effect seems to be poor. Judging from the performance forecast, the annual performance of these enterprises will probably suffer losses. Among them, the net assets of Yunnan Urban Investment are even negative at the end of 2020.

It can be said that even if there is no new delisting regulation, these enterprises are close to the edge of delisting, or become shell companies.

In August last year, the Prudential Management Policy of real estate finance based on "three red lines" was launched. This policy makes it impossible for small and medium-sized real estate enterprises to overtake on the curve while implementing quantitative management on the liabilities of real estate enterprises. At the end of the year, the new regulations on delisting of A-shares were introduced, and a large number of listed real estate enterprises with poor fundamentals and difficult to become bigger and stronger faced with the pressure of "shell protection".

In the future, where will these enterprises go?

Behind the delisting risk of the three companies is the survival dilemma of small and medium-sized real estate enterprises under the background of stricter supervision and increasingly fierce competition. Photo by Zheng dikun

Early warning

China housing stock is the first real estate enterprise to raise the alarm of delisting this year. On January 28, China real estate announced that it is expected that the company's net profit attributable to its parent company in 2020 will be about - 51 million yuan, and its operating income will be less than 100 million yuan. According to the latest revised delisting rules, the company's shares may be subject to delisting risk warning after the disclosure of the annual report in 2020.

The next day, Greenview holdings issued the same warning. In 2020, the net profit attributable to the parent company of Lvjing holdings will be from - 23 million yuan to - 15.5 million yuan, and the operating income will be from 13.2 million yuan to 16.2 million yuan, which also meets the conditions of delisting risk warning.

These two real estate enterprises appeared early warning, both due to the new regulations on delisting of a shares issued in December last year. For example, in the financial indicators, the delisting standard is changed from "loss for three or four consecutive years" to "net profit loss for two consecutive years and revenue less than 100 million".

The new standard will significantly increase the number of enterprises meeting the delisting conditions. According to the results of the first three quarters of this year, there are seven real estate enterprises facing delisting risk, including China housing and Greenview holdings.

The delisting risk of Yunnan urban investment is reflected in the delisting rules before revision. On January 30, Yunnan Chengtou became the third real estate enterprise to sound the alarm because of "negative net assets at the end of 2020".

The introduction of the new delisting rules, although some real estate enterprises quickly fall into "shell" panic, but for these enterprises with poor fundamentals, the alarm has actually sounded.

Over the past years, China real estate shares have been maintaining the state of "low profit every other year", that is, loss in the current year and profit in the next year, which also enables the company to maintain its listing status under the original rules. However, according to the new delisting rules, the "next year's meager profit" strategy is no longer effective. If the revenue in 2020 is less than 100 million yuan, and the net profit attributable to the parent is negative, the company will directly "put on a star and wear a hat".

Greenview holdings is also in poor shape. As of 2020, the net profit of Lvjing holdings after deducting non recurring profit and loss for 4 consecutive years is negative, and the net profit for 2 consecutive years is negative. Even without new rules, companies have fallen to the brink of delisting.

The fall of Yunnan Chengtou is no surprise. In the past year, Yunnan urban investment has been alleviating the capital problem by selling assets, which also leads to the company's net assets at the end of the period from positive to negative. At the same time, affected by the epidemic situation, the company reduced prices and made provision for inventory impairment, resulting in a loss in net profit attributable to the parent company for the second consecutive year. If the net profit after deducting non-profit, Yunnan urban investment has been losing money for the third consecutive year.

In addition to these three enterprises, there are many real estate enterprises facing potential pressure. A person in charge of a listed real estate enterprise in Beijing told the 21st century economic report that at present, there are more than 130 real estate enterprises listed in A-share market, of which at least 30 are small-scale and have low profits. Some of these companies are no longer traditional real estate. For many years, the disadvantages of scale and profit have made them give up catching up and become "shell" party.

According to the new rules, some small-scale regional real estate enterprises, heavy assets real estate enterprises with large proportion of holding properties, and real estate enterprises with systemic risks are most likely to encounter delisting warning in the future.

Shell or delisting?

In terms of scale, small real estate enterprises are undoubtedly the largest number of delisting risks. As for the three companies mentioned above, some analysts point out that their common characteristics are: early listing, small scale and in the process of transformation.

The three real estate companies all landed in the capital market in the 1990s, but they did not make use of the real estate marketization dividend in the past 20 years to grow rapidly. On the contrary, its scale is still outside the top 100, and its competitiveness is relatively insufficient. In recent years, due to the increasingly fierce competition in the industry, a number of small real estate enterprises have started business transformation.

After the mixed reform failed, Yunnan Urban Investment Group is relying on the resources of the parent company kanglv group to transform into culture, tourism, health care and other businesses. Although the company has a certain land reserve, there are not many real estate projects that can quickly bring cash flow. This is also considered to be the main reason for the company to fall into the capital chain crisis.

In recent years, the real estate business of Greenview Holdings has been gradually "stripped off". The company has made many cross-border attempts. After the failure of medical transformation, it once tried to enter the online education industry. Recently, Greenview holdings intends to acquire a data company.

In fact, in the context of the "three red lines", the opportunity for real estate enterprises to overtake the curve is even more slim. For small real estate enterprises unwilling to be acquired, transformation has become the only choice.

Bai Wenxi, vice president of the China enterprise capital alliance, told the 21st century economic reporter that the "three red lines" exert more influence on enterprises from the aspect of financing, which may cause long-term loss of performance, low stock price and credit rating decline of small and medium-sized real estate enterprises, thus leading to delisting risk. This also forces small and medium-sized real estate enterprises need to take cash flow as the core to realize strategic transformation as soon as possible.

From another dimension, "three red lines" as a yardstick, can also more accurately measure the necessity of enterprise transformation. According to the announcement, as of the end of the third quarter of 2020, the asset liability ratio of Yunnan Urban Investment excluding the advance payment is about 95.13% (exceeding the red line level of 70%), the net debt ratio is about 785.5% (exceeding the red line level of 100%), and the cash short debt ratio is only 0.08 (lower than the red line level of one time).

At that time, although Yunnan Urban Investment did not touch the delisting alarm, it all stepped on the "three red lines", which showed that the adjustment and transformation of the company was urgent.

Bai Wenxi pointed out that for small and medium-sized real estate enterprises, the "three red lines" and the new delisting rules may not be all negative, but will become the pressure and power to promote the transformation of enterprises as soon as possible. Compared with large real estate enterprises, the transformation of small and medium-sized real estate enterprises has greater flexibility and freedom.

At the same time, he said that the transformation of small real estate enterprises can either realize the deepening and differentiation of the industrial chain division of labor, and enhance the survival and development ability by relying on the degree of specialization; or realize the industry alliance to obtain competitiveness through scale effect. Otherwise, in the increasingly harsh policy environment, the delisting risk of small real estate enterprises will continue to increase, and it will become a matter of probability to encounter delisting or become shell companies.

This fall into the edge of the delisting of China housing shares, has become a shell company. After the transformation of the new clean energy industry failed, since 2015, China housing has become a platform company for Zhongwang to return to a shares. At the beginning of 2020, the reorganization of both sides will be restarted. Analysts believe that, at present, the success of the restructuring will become a key factor in whether China housing shares can stay in a shares.

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