The "three red lines" continue to ferment, and the credit risks of real estate companies continue to differentiate

Intensive sales of assets, price reduction promotions, spin-off properties for listing, introduction of strategic investors... Most of the phenomena happening in the real estate industry can be traced back to the same reason, that is, " "Three Red Lines" new financing regulations.

“It is expected that the risk of capital chain rupture and debt continuity pressure of highly indebted real estate companies will further increase.” Yang Dong, senior analyst of the Industrial and Commercial Rating Department of Lianhe Credit Rating Co., Ltd. said that with the changes in industry financing policies With further tightening, for high-debt real estate companies, it may be difficult to see growth in sales and repayment collections throughout the year, and there will be greater uncertainty in project equity sales and asset revitalization.

As for self-rescue in a crisis, Yang Dong said that leverage can be reduced by promoting sales, fast turnover, selling equity, introducing strategic investors, and cooperative development.

New financing regulations continue to ferment

January is the traditional peak period for bond issuance in the real estate industry. However, this tradition was broken in 2021.

Currently, the financing scale of the real estate industry has declined significantly. According to statistics from the Shell Research Institute, the total domestic and overseas bond financing of real estate companies in January 2021 was approximately 163 billion yuan, a year-on-year decrease of 5.3%. The last week of January 2020 coincided with the market closure period during the Spring Festival holiday. With one week of fewer trading days, the first week of this year The monthly bond issuance scale failed to exceed the same period last year.

Since 2017, the financing scale of the real estate industry has shown a sharp increase in the first month of the new year. For example, the scale of bond issuance in the first month of 2020 was 172.1 billion yuan, the peak for the whole year. Shell Research Institute believes that the first month of each year has been the peak of bond financing for real estate companies. The hot bond market in the first month of 2021 is in line with the traditional bond issuance rhythm, but the scale of bond issuance is lower than market expectations due to the impact of new financing regulations.

The scale of bond financing of real estate companies from January 2011 to January 2020

Data source: wind, compiled by Shell Research Institute

However, looking at last year’s Regarding the financing situation, the growth rate of financing has slowed down. According to statistics from the Shell Research Institute, the total domestic and overseas bond financing of real estate companies in 2020 was approximately 1,213.2 billion yuan, a cumulative year-on-year increase of 3, and the cumulative growth rate was 10 percentage points narrower than the same period in 2019.

Behind the decline in financing scale is the continuously tightening policy environment. On August 20 last year, regulatory agencies proposed the "three red lines" policy for the first time. At the beginning of this year, the central bank and the Ministry of Housing and Urban-Rural Development held another symposium. The pilot housing companies for the "three red lines" are expected to be further expanded.

In addition to the three liability indicators (the asset-liability ratio after excluding advances from accounts is greater than 70/the net debt ratio is greater than 100/the cash-to-short-term debt ratio is less than 1 times), the implementation details of the new financing regulations are more stringent. Yang Dong said that although the specific implementation details have not yet been officially released, the implementation of the new regulations mainly includes the following aspects:

1. Starting from October 2020, pilot enterprises must fill in the report before the 15th of each month. Five off-balance sheet related liabilities include equity participation in unconsolidated residential real estate projects, open-share real debt financing, supply chain asset securitization products, net investment from partner shareholders, and other real estate-related off-balance sheet interest-bearing liabilities. Comprehensive coverage of various financing channels for real estate, both on and off the balance sheet;

2. ? 2 observation indicators: the land acquisition to sales ratio is not higher than 40, and the operating cash flow has been negative for three consecutive years, and it is necessary to Explain the source of land funds;

3. ? Perpetual bond statistical caliber: Perpetual bonds issued before August 2020 can be used as equity calculation leverage ratio and other indicators, and those issued after August 2020 Perpetual bonds included in owners' equity should be excluded when calculating total assets, net assets and other accounts.

With the gradual implementation of new financing regulations, the financing scale of real estate companies will also show a downward trend. Shell Research Institute believes that under the influence of the expanded applicable new financing regulations in 2021, more real estate companies will take the initiative to "reduce their burdens", and the scale of financing throughout the year will remain low. Small and medium-sized real estate companies may be the first to feel the tight pressure of the bond market.

The credit risks of real estate companies continue to diverge

Yu Liang, chairman of the board of directors of Vanke Group, said that the "three red lines" will change the rules of the industry. So in what aspects will this change mainly be reflected?

“The credit risks of real estate companies with different scales, operations and financial strategies continue to diverge.” This is the answer given by Yang Dong.

In fact, the scale of violations in the real estate industry has increased significantly. Guotai Junan believes that since 2020, Xinhualian (000620, Stock Bar), Tahoe, Tianfang and Sansheng Hongye have successively defaulted, and the total default amount of principal and interest in the real estate industry is 14.884 billion yuan, exceeding the default level in 2018-2019. Among them, 6 bonds of Top 50 real estate company Tahoe Group (000732, Stock Bar) defaulted, with a total default of principal and interest of 11.677 billion yuan.

According to statistics from CITIC Securities (600030, Stock Bar), currently, 9 domestic bond-issuing real estate companies have experienced actual bond defaults. Among them, only Tahoe Group was once a first-tier real estate company. The defaults of small and medium-sized real estate companies are related to the failure of diversified investments.

Guotai Junan believes that since the bond market is the direct starting point for restricting financing, the issuance volume of real estate bonds in the primary market is expected to shrink, and more bond selection opportunities will be tapped from the secondary market in the future. The agency recommends that investors avoid red-grade, orange-grade real estate companies with insufficient land reserves and small-scale real estate companies.

Yang Dong believes that the new financing regulations will cause financial institutions to be more cautious in controlling the financing business quotas and loan purposes of real estate companies, and investors will be more cautious in their investment preferences, gradually tilting towards companies with stable operations and low debt.

Different real estate companies have different debt pressures. Yang Dong believes that leading real estate companies with high turnover, good project layout, and light debt burden will rely on their own scale advantages to become more stable; highly leveraged real estate companies will shrink their business. The expansion mode will slow down the development speed; it will be more difficult for small and medium-sized real estate companies to achieve overtaking in corners by increasing leverage, and the credit risks of small and medium-sized real estate companies with slowing sales and poor sales will increase.

The sales of highly indebted real estate companies may be difficult to grow

Highly indebted real estate companies have attracted more attention from the outside world, both in terms of development speed and scale, especially the tightening of the financing environment coupled with the debt repayment of real estate companies. The arrival of the peak will undoubtedly be a heavy blow to high-indebted real estate companies.

According to data from the Shell Research Institute, the debt repayment scale in 2020 will be approximately 915.4 billion yuan, a year-on-year increase of 28.7%. The debt maturity scale in 2021 (excluding ultra-short-term bonds to be issued in 2021) is expected to reach 1.2448 billion yuan. , a year-on-year increase of 36, historically breaking through the trillion mark, reaching 1.2 trillion yuan, and the debt repayment pressure of real estate companies continues to rise.

The scale of maturing bonds of real estate companies (according to existing bonds) (CNY)

Data source: wind, compiled by Shell Research Institute

Yang Dong believes that high Indebted real estate companies, as well as companies with a large number of cooperative developments, large guarantee scales, and asset securitization, will face the dilemma of tightening financing channels. The "three red lines" have limited the growth rate of interest-bearing debt. The new debt of highly indebted real estate companies is mainly used to borrow new money to repay old ones, and the possibility of relying on financing to acquire land and expand is limited.

Especially for high-indebted real estate companies with insufficient land reserves, Guotai Junan believes that on the one hand, such real estate companies are difficult to borrow on a large scale due to policy restrictions, and debt rollover and land investment are restricted; on the other hand, land reserves The lack of funds also restricts the growth of its operating cash flow. When faced with the pressure of selling back at maturity, the problem of capital chain breakage may occur, and there is a certain degree of credit risk.

Yang Dong believes that with the further tightening of industry financing policies, for high-debt real estate companies, it may be difficult to achieve growth in sales and repayment throughout the year, and there is greater uncertainty in project equity sales and asset revitalization. nature, the risk of capital chain rupture and the pressure of debt continuity have further increased.

For high-debt companies, the top priority is to increase cash flow. In this regard, Yang Dong believes that the first step is to sell quickly and have high turnover, followed by selling equity to revitalize assets to recover funds and quickly reduce leverage.

In fact, the intensity of real estate companies transferring assets is increasing rapidly.

According to public information from the Beijing Equity Exchange, in November, there were 23 property rights transfer projects in the real estate industry, far exceeding the total in the previous October. Among them, 19 were central enterprises transferring equity in real estate projects, accounting for nearly 80%.

Recent equity transfer cases of real estate company subsidiaries

Source: Lianhe Credit Investment Co., Ltd.

Cooperative development and introduction of strategic investors are also important ways to reduce debt. Other ways are also Including asset spin-offs or listings. For example, since 2020, real estate companies have actively spun off property companies and listed them in Hong Kong, which is a response to reducing debt.