Bonds Fell 21%, Real Estate Companies Step On The "Red Line" Red Star Macalline Can "Survive"?

After the regulatory authorities in Guangdong, Shenzhen and other places announced the investigation results of illegal entry of personal business loans into the property market, Beijing Banking and Insurance Regulatory Bureau, together with relevant departments, promptly took strong regulatory measures such as deploying comprehensive self-examination, carrying out special inspection, and introducing a special system.

There is no sign of relaxation in the supervision of real estate enterprises. In this context, it is conceivable that the housing enterprises with poor capital are under pressure. Since March, investors have "voted with their feet" on Macalline, the "invisible developer".

At 16:09 on March 23, the inter-bank transaction price of "20 macarone mtn001" was 77.20 yuan, which has dropped by 21.4% so far this year. Prior to March 11, the bond was hit a minimum of 65 yuan. On March 2, another red star Macalline bond "18 Red Star home mtn001" fell to 75 yuan at the lowest.

Many bonds were sold and prices fell, highlighting the Red Star Macalline enterprise debt ratio is high, business pressure doubled. On January 29, red star Macalline home furnishing Group Co., Ltd. (Stock Code: 601828, hereinafter referred to as "Macalline") issued a profit warning notice, saying that in 2020, it will encounter the impact of the epidemic, and its net profit will drop by 56.0% to 61.8% year-on-year. In addition, subsidiaries of the group's real estate sector have stepped on one of the "three red lines" of real estate enterprises after large-scale debt raising in recent years, facing the pressure of subsequent financing constraints.

After continuous debt expansion, red star Macalline Holding Group Co., Ltd. (hereinafter referred to as "Red Star Macalline group") has a high debt ratio. By the end of September 2020, its total debt has reached 186.08 billion yuan, more than 40% of its assets have been mortgaged for guarantee financing, and the restricted assets have reached 104.768 billion yuan.

As of the end of September 2020, the monetary capital on Macalline's account is only 6.22 billion yuan, while the non current liabilities due within one year are as high as 12.498 billion yuan. With the addition of 3.664 billion yuan of short-term loans, the debt repayment pressure can be imagined.

On March 17, Fitch downgraded Macalline's long-term foreign currency issuer default rating (IDR), senior uncollaterable rating and US $300 million of preferred notes due in 2022 from "BB +" to "BB". The outlook for the default rating of long-term foreign currency issuers is "negative". More than a month ago, S & P lowered the credit rating of Macalline issuers from "BB +" to "BB".

With an investment real estate scale of 91 billion yuan, Macalline is second only to China Merchants Shekou, the largest landlord of a shares. However, this "runner up" has a tight life.

Current liabilities account for 83%

As of September 30, 2020, red star Macalline has operated 89 self operated shopping malls, 255 entrusted shopping malls and 11 home shopping malls through strategic cooperation. Over the years, Macalline has not only earned a stable income from tenants' rents, but also shared the real estate value-added benefits brought about by the rising house prices in the city.

In addition to the home furnishing platform Macalline, red star Macalline group also has an important business segment for real estate development. Chongqing Red Star Macalline Enterprise Development Co., Ltd. (hereinafter referred to as "red star enterprise development") is an important business segment of Red Star Macalline group.

According to the public information, since 2009, red star Macalline has started to enter the real estate development business. Relying on the resource advantages of operating home stores and self built home shopping malls, red star Macalline has obtained some other commercial and residential land near home shopping malls, and its revenue and urban layout have increased year by year. According to the latest statistics of the China Media Research Institute, in 2020, Shanghai Red Star Macalline Real Estate Group Co., Ltd. (hereinafter referred to as "Red Star real estate") ranked 59th with a sales scale of 65.41 billion yuan.

Some people in the industry said that due to the need for continuous blood transfusion to the real estate business, the debt scale of Red Star Macalline group expanded rapidly. By the end of September 2020, the total debt of Red Star Macalline group reached 186.08 billion yuan.

After continuous expansion, the debt ratio of red star enterprises has been high. Wind data shows that by the end of June 2020, the total liabilities of red star enterprises reached 87.74 billion yuan, including 72.502 billion current liabilities, accounting for 83% of the total liabilities. After excluding the advance collection, the asset liability ratio reached 73.16%, exceeding the 70% regulatory red line; in addition, the cash short debt ratio was 1.08%, and the net debt ratio was 95.86%, which was close to the red line.

The real estate platform red star enterprise development own public financing is not much, relying on Red Star Macalline group to provide financial support. According to the United credit rating report, by the end of 2019, other receivables of Red Star Macalline group were 17.543 billion yuan, an increase of 5.36% over the beginning of the year, mainly due to the increase of loans and current accounts. Among other receivables, other receivables of the top five companies in arrears accounted for 32.75%, all of which were affiliated enterprises, of which the first four were Chongqing Red Star Macalline enterprises Limited to affiliated enterprises indirectly controlled or held by the company.

More than 40% of the assets are mortgaged or guaranteed

In order to continuously finance blood transfusion related business, red star Macalline group has been "heavily in debt". By the end of September 2020, the interest bearing liabilities of Red Star Macalline group reached 90.98 billion. According to the relevant rating report data of Lianhe credit, the scale of interest bearing debt of Red Star Macalline group within one year (including one year) reaches 35.304 billion, while the short-term debt ratio of cash is only 0.55 times, and the debt degree of cash assets to short-term interest bearing debt is weak.

Moreover, a large number of assets have been pledged. According to the bond issuance data of Red Star Macalline group, by the end of September 2020, the book value of restricted assets totaled 104.768 billion yuan, accounting for 41.07% of its total assets and 151.84% of its net assets. Among the restricted assets, 83.983 billion investment real estate and 17.363 billion Inventory were restricted by mortgage.

As of the end of September last year, the total scale of investment real estate of Red Star Macalline group was 99.328 billion, which means that 84.6% of the investment real estate assets have been limited, or have a certain impact on the liquidity of assets.

A significant portion of Macalline's shares have also been mortgaged. As of September 1, 2020, red star Macalline group has held 69.87% equity of Macalline, of which 47.43% has been pledged by red star Macalline group for financing. The actual controller of Red Star Macalline group is Che Jianxing.

In order to ease the pressure of debt repayment, red star Macalline group issued 2021 corporate bonds (phase I) (referred to as "21 Red Star 01") on March 10 this year, raising 3 billion yuan. According to the prospectus of the bonds, the funds raised by the bonds will be used to repay the company's bonds after deducting the underwriting expenses and other related expenses.

In the past year, Macalline has frequently issued bonds and non-public issuance of shares to ease the pressure of debt repayment. Among them, the fixed increase plan of 3.7 billion yuan has been approved by the CSRC on March 1 this year. In order to stabilize investors, red star Macalline has also launched two big moves to separate two subsidiary companies of Red Star Macalline group: Aegean business plan, which is responsible for the preparation, investment promotion and operation of urban complex and commercial shopping center, will be listed in Xianggang with an estimated value of 12-15 billion yuan in October; Dongfeng Design Institute Co., Ltd., an automobile production line designer, is expected to be valued at 9-10 billion yuan Yuan.

After the successful issuance of 2021 corporate bonds (phase I) on March 10 to raise 3 billion funds, if the subsequent 3.7 billion fixed increase is successfully raised, the short-term debt repayment pressure of Red Star Macalline group will be greatly relieved, and the successful split listing of its two subsidiaries will further relieve the debt repayment pressure.

Out of the impact of the epidemic and real estate regulation

Affected by the epidemic situation last year, Macalline's performance declined. In the first three quarters of 2020, the revenue of Red Star Macalline's shopping centers decreased by about 19%. According to its performance forecast, in 2020, Macalline realized a net profit of 1.711 billion yuan to 1.971 billion yuan belonging to the shareholders of the listed company, with a year-on-year decrease of 56.0% to 61.8%.

Although this year has gradually come out of the shadow of the impact of the epidemic, and even consumer demand has begun to warm up, this year, the real estate regulation in various regions may bring uncertainty to the company's operation.

From the past data, every time the real estate regulation and control add strength will impact the home sales industry. For example, after the national day of 2016, local governments frequently issued real estate regulation policies, and the real estate market dropped significantly. In 2017, the cumulative sales volume of building materials and home furnishing stores above designated size was 917.370 billion yuan, down 22.60% compared with the previous year.

Since this year, many places have increased the real estate regulation and control, and the United credit rating report believes that under the positioning of "housing without speculation", the building materials and home furnishing market is still facing greater pressure. In general, the gross profit rate of Macalline in the first three quarters of 2020 is as high as 50.04%, and its profitability is still strong.

A large number of saleable real estate projects will continue to bring sales returns. As of the end of September 2020, the total saleable area of the completed projects of Red Star Macalline group is 3.6462 million square meters, and the contracted sales area is 3.3786 million square meters, with an average removal rate of 92.66%. The remaining saleable area of the project under construction is 7.2463 million square meters, and the follow-up sales revenue will continue to supplement the cash flow.

However, according to the United credit rating report, 36.92% of the company's land reserves are located in the third and fourth tier cities. Some third and fourth tier cities have weak economic foundation, population outflow and oversupply of real estate, which may face the pressure of de capitalization.

Investment real estate valuation method may aggravate performance fluctuation

As a result of holding a large number of shopping mall properties, Macalline has been re elected as the largest A-share "landlord" for many years. However, as of the end of September last year, the scale of Macalline's investment real estate was 91 billion, second only to China Merchants Shekou's 97.3 billion investment real estate.

The 91 billion investment real estate held by Macalline, accounting for 70% of its total assets, is of great importance to the company. However, these self-contained home furnishing shopping malls are often questioned as financial and technical operations by the market, and more than 80% of the investment real estate has been pledged for financing, which is difficult to realize.

According to accounting standards, there are two accounting basis for investment real estate, one is historical cost method, the other is fair value method. The historical cost method is recorded according to the purchase or construction cost, which is the same as the ordinary real estate accounting method, and the depreciation is calculated monthly; the fair value method does not need to make depreciation.

Unlike A-share listed companies, which generally use the cost method to value the investment real estate, Macalline chooses to value the investment real estate according to the fair value method. The investment real estate such as Haining Leather City, small commodity city and light textile city, which also operate shopping malls, is valued according to the cost method. The biggest advantage of fair value method is that it can benefit from the rise of house price, and there is no need to make depreciation. As the house price is in the rising channel, Macalline can harvest the profit of value-added evaluation every year. In the first three quarters of last year, the value-added income of Macalline's investment real estate was 379 million.

In 2019, the fair value change income of Macalline investment real estate is 1.601 billion yuan, accounting for 25.8% of the total profit of the company. In 2017 and 2018, they even accounted for more than 30%. It can be seen that in the housing price rising cycle, the fluctuation of fair value has contributed a lot to Macalline's performance, but it also makes the non recurring profit and loss of Macalline relatively large. The proportion of the company's deduction of non net profit in the net profit is as low as 50% - 70% for a long time, so the risk of performance fluctuation is high.

Once the house price falls, the fluctuation of fair value of Macalline's investment assets will also drag down the performance.

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