In real estate, as the saying goes, it’s about location, location, location. Often, it’s also about timing, timing, timing – even if at the time, the timing looks to be all wrong.
Cases in point are
Seazen Group and
Dalian Wanda Group, two of the few privately controlled Chinese developers that have managed to survive the sector's maelstrom – at least so far. During the golden age of the property boom, both were viewed as unfortunates, because, for different reasons, they were forced to sell off significant assets to bolster their respective balance sheets even as their peers were levering up to increase their footprints in order to take advantage of the booming demand for abodes.
As Reorg first reported this week, at a time most developers are locked out of the financial market, Seazen Group, via its onshore subsidiary Seazen Holdings, is preparing to offer more than CNY 1 billion ($138.3 million) medium-term notes, or MTNs, guaranteed by China Bond Insurance Co. Ltd as soon as this month. The developer expects to be able to obtain the guarantee in part because it still has collateral to provide to the guarantor in the form of encumbrance capacity at three Wuyue Plaza shopping centers. (China Bond Insurance is still finalizing due diligence.)
In total, Seazen has 198 Wuyue Plazas, which it has repeatedly been able to use to back financing and remain afloat amid the three-year collapse in residential. The collection has also enabled the company to benefit from the operating property loan
policies that Beijing rolled out in January, in which banks are allowed to provide commercial property loans to eligible developers to allow them to pay off even debt that is unrelated to the respective pledged collateral.
Perhaps more importantly, Seazen, like Dalian Wanda – also with heavy exposure to commercial – is still standing because of the price it was forced to pay for sins in the past.
Seazen was thrown into a financial crisis after founder and initial chairman, Wang Zhenhua, was arrested in 2019 for personal proclivities unrelated to the business, locking the company out of financing options. His son took over and quickly sold CNY 4.15 billion worth of assets, mostly to Chongqing-based developer
Jinke Property Group, in order to cash up.
Similarly, though less distastefully, Dalian Wanda was forced to cash up in 2017 by selling off a bunch of assets because it was one of a handful of conglomerates to be squeezed by Beijing for engaging in an aggressive, debt fueled offshore acquisition spree. (Another was the notorious HNA Group) Wanda, which is controlled by the once very well-connected Wang Jianlin, sold CNY 43.8 billion cultural and tourism projects to
Sunac China and CNY 19.9 billion hotel assets to
R&F Properties.
What was viewed as bargain deals at the time for the three buyers had become a heavy burden for them. Jinke, Sunac, and R&F have all needed to restructure their offshore bonds in the past two years. (In fact, Jinke, which first defaulted in December 2022, and has yet to emerge with a restructuring plan for its offshore notes.)
The trio could only hope that their bad luck is also really good luck in disguise.
Coverage of Seazen is HERE. Coverage of Wanda is HERE. Coverage of Sunac is HERE. Coverage of R&F is HERE. Coverage of Jinke is HERE.
Other Top Stories:
China Construction Bank (Asia) Corp has filed a winding-up petition against Chinese real estate developer Shimao Group Holdings Ltd. in the Hong Kong high court, with a hearing for the petition scheduled for June 26. The filing from the lender follows an earlier call on bondholders from an ad hoc group holding over 25% of the company’s offshore bonds to reject Shimao’s most recent restructuring proposal.
Coverage of Shimao is HERE.
Real money investors recently approached Fosun International to discuss whether it will issue new USD notes. If the Chinese conglomerate were to issue new USD notes, it would most likely price them with a minimum 11% to 13% coupon - the current yield on its USD bonds - potentially adding a premium. However, if it were forced to accept market-based pricing, Fosun may consider pricing too high at present. Separately, Fosun has told investors in private meetings that it plans to use proceeds from non-core asset disposals to repay onshore debt in 2024.
Coverage of Fosun International is HERE.
International hedge funds Ares Management and Tor Investment Management are trying to use international enforcement rulings to drill down to pledged Indonesian properties of David Salim that back a defaulted $200 million private credit facility, but continue to be stifled by his legal counters domestically and in Singapore. The three-year recovery battle over the financing that backed Salim’s development of the Supermal Karawaci mall and related residential properties in Indonesia’s main island of Java highlights the challenges creditors face in trying to recover assets in the country, underscoring the risks to private credit investors at a time the funding structure is proliferating around the world, and with increasing amounts of capital raised for the strategy in Asia.
Coverage of Asia Private Credit is HERE, coverage of Dewata Wibawa is HERE, and coverage of Supermal Karawaci is HERE.
Kotak Mahindra Group-backed Phoenix ARC Pvt. Ltd. has acquired nonperforming real estate loans of around INR 19 billion ($227.7 million) from IIFL Finance Ltd. for INR 15 billion, under 15:85 cash: security receipt basis. IIFL Finance is planning to put additional nonperforming real estate loans of around INR 6 billion on sale, for which it has struck a bilateral deal with Phoenix ARC. The stressed loans sold by IIFL Finance will help improve its liquidity position, especially since India’s central bank - the Reserve Bank of India - has barred it from disbursing gold loans.
Coverage of IIFL Finance is HERE.
Ricardo Constructions Pvt. Ltd., a subsidiary of the Shapoorji Pallonji Group, has raised INR 5.05 billion ($60.50 million) from PAG Asia’s India-focused Asia Pragati Strategic Investment Fund through the private placement of non-convertible debentures, or NCDs, due March 31, 2029. The NCDs have a "coupon rate" of 12% per annum, and a "PIK rate" of 17.25% per annum, without specifying whether the rates are combined or either/or. Proceeds of the issue will be utilized by the company to repay INR 4.05 billion debt owed to Piramal and HDFC, which was secured by the Mulund Project – a residential project in the suburbs of Mumbai.
Coverage of Shapoorji Pallonji Group is HERE.