A Day Ahead Of The Investors' Telephone Conference: What Did Zhong Liang Explain?

"Three red lines" top, real estate financing end can not withstand a trace of wind and grass.

? ? ? On June 21, the 21st century economic report exclusively disclosed that Li Heli, CO president of Zhongliang Holdings (02772. HK), confirmed his resignation. On June 23, Zhong Liang's three U.S. dollar bonds due in 2022 recorded the biggest drop in recent three months. As of June 29, the above-mentioned three dollar bonds fell more than once.

The company's plan was announced on Friday (June 25), and then it was announced before the opening of Hong Kong stock market on the morning of June 24. You Sijia, executive director and chief financial officer of Zhongliang, presided over a telephone meeting of investors to explain the company's operation, debt and other aspects. People familiar with the matter said UBS helped coordinate the investor meeting.

At the investor meeting, you Sijia explained that Li Heli left the company for personal development reasons and stressed the three-tier management structure adopted by Zhongliang: the group's senior management mechanism and strategy; Sub groups and regions are responsible for investment and sale of buildings and important business decisions; The manager of the underlying development business is responsible for execution. You Sijia thinks that this is a relatively stable organizational structure. According to its disclosure, He Jian takes over Li Heli and will be responsible for investment product development, sales, customer service and other development business in the future.

On June 24, Li told reporters in the 21st century economic report that after leaving office, he would engage in investment business.

As one of the three red line pilot real estate enterprises, the capital market is relatively sensitive to personnel changes and bond changes. You Sijia disclosed that at present, Zhongliang is still waiting for the approval of the amount of offshore bond issuance to issue new territory foreign debt to refinance its three overseas bonds with a total scale of US $950 million.

After the fall in US dollar debt

The above three US dollar bonds include: a US dollar bond due on September 26, 2021, with an existing scale of US $400 million and a coupon rate of 11.5%; A U.S. dollar bond due on January 31, 2022 has a current scale of US $250 million and a coupon rate of 7.5%; A U.S. dollar bond due on May 19, 2022 has a current size of US $300 million and a coupon rate of 8.5%.

U.S. dollar debt fell sharply, and you said that if necessary, the company would arrange to remit funds from China to overseas to meet its $400 million debt due in September 2021. At the same time, the management added that the possibility of the company to buy back the US dollar bonds in advance was not ruled out.

Zhong Liang also has a US dollar bond due on November 22 this year, with an existing scale of US $200 million and a coupon rate of 8.875%. All principal of this US dollar bond is held by two holders. Zhongliang has now reached an agreement with two holders of US dollar bonds due in November 2021 to roll over the entire issue before maturity.

Affected by the cashing of Taihe, Huaxia Xingfu and other bonds since this year, the bond circle of real estate enterprises is actually very fragile and can not withstand a trace of wind and grass.

You Sijia first put forward the view that Zhongliang still has financing space. For example, the $70 million syndicated loan has the opportunity to be extended, but this is based on the stable credit rating. In addition, the central beam also has ways to deal with the shortage of funds. Due to the large shareholder shares accounted for 83% of the total share capital, there is still room for war and additional issuance. Even Yang Jian, chairman of Zhongliang holding group, another affiliated company of Huasheng and yousijia, has clarified that Zhongliang has no debt guarantee for it.

Uncertainty in solvency

After the change of president, Zhongliang has always stressed that it is a strategy and mechanism oriented, collective leadership and systematic management business model. But how to show the company's solvency in front of investors, you Sijia spent a lot of thought.

Although it has been reduced to the Yellow level, Zhongliang still faces tough debt management. Such as the difficulty of financing. Subject to the strict control of the regulatory authorities on the financing end, there is no new progress in the domestic direct financing of Zhongliang. Zhongliang admitted that in the syndicated loan, the bank will give the big real estate enterprises first, and Zhongliang can only get "a little bit of meat". The $70 million bilateral syndicate due in March next year, "because bank lines are generally reserved for the highest rated companies, there will be little increase." Zhongliang management admitted.

You Sijia pointed out that its overall debt level is controllable and there is no pressure on cashing and refinancing in the short term. One of the reasons is that the company mainly relies on the development loan mainly based on project mortgage, which is relatively scattered in time and has no maturity concentration; The second is to arrange the payment in advance according to the project cash flow.

Zhongliang estimates that its total debt by the end of June this year will be the same as that at the end of last year, about 54 billion yuan. "Although the interest bearing liabilities of yellow real estate enterprises can grow by 10%, we will not necessarily grow.".

Correspondingly, Zhongliang invested 38.8 billion yuan in 57 projects in the first five months of this year. There is no too much explanation for this. The value of newly acquired land and goods is 90 billion yuan, of which 65% are third tier cities, and the ratio of land to goods is more than 2.5 times.

In terms of financial structure, Zhongliang is confident that the proportion of non bank loans in interest bearing liabilities will be reduced from 28% at the end of 2020 to 25% by the end of June this year. If it goes well, it will be reduced to 20% - 25% by the end of 2021.

However, Zhongliang may not be able to reduce the average financing cost from 8.5% at the end of this year to the expected 8% at the beginning of the year. The reason is the uncertainty of the cost of US dollar debt financing in the next six months. You Sijia also hopes investors can understand.

From the information released by investors, Zhongliang has taken some measures, such as reducing the dependence on high interest bonds, such as reducing the issuance of 364 day public offering bonds and increasing the proportion of long-term bonds; Second, there is no special increase in the total amount.

You said that if the company's credit rating remained stable, its outstanding $70 million syndicated loan would probably be extended. The syndicated loan will mature in March 2022. Hang Seng Bank and Bank of China are the lenders of the syndicated loan. The loan principal of US $20 million is provided by Hang Seng Bank, while the remaining US $50 million loan principal is provided by Bank of China.

Second, China Liang domestic bond financing plan has not made progress. You Sijia believes that since March 2021, the central regulatory authority has further tightened the financing of the real estate industry, which is more severe than expected. However, he does not expect new and more stringent policies to be introduced. In the future, he expects to have the second and third batch of real estate enterprises to cover the top 50 and 100 real estate enterprises. More real estate companies are financing tight.

In addition, the stock of commercial tickets in Zhongliang will not exceed 1.5 billion yuan, and there is no extension at present. You Sijia thinks that compared with other mainstream real estate enterprises, this amount is not much.

In its 2020 financial report performance meeting, Zhongliang Holdings said it expected to officially obtain the first inter-bank medium-term note (MTN) issuance limit by the end of September this year, which is part of the pilot plan to expand the opportunities for real estate enterprises to enter the inter-bank bond market. The main purpose is to encourage real estate companies to refinance other types of debt through the inter-bank bond market. Whether it can be approved is still unknown.

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