Caixin
Apr 09, 2021 08:10 PM
BUSINESS & TECH

Cash-Strapped Developer China Fortune Gets Debt Reprieve

Creditors of China Fortune Land Development Co. Ltd. (600340.SH) have agreed to extend the payment deadline on 17.8 billion yuan ($2.7 billion) in debt after the property developer defaulted earlier this year.

With the agreement and support from the government in North China’s Hebei province, the developer has finally taken a step toward defusing its debt crisis.

At an online meeting with China Fortune’s creditor committee on Wednesday, Chief Financial Officer Wu Zhongbing announced that the company had 220 billion yuan in outstanding interest-bearing debt as of that day, according to several creditors with knowledge of the matter. Wu said the company had failed to pay 37 billion yuan of the debt on time, including bank loans, trust loans and bonds issued overseas, according to the company’s exchange filings.

The committee is made up of 120 creditors, who together hold about half of the company’s total outstanding interest-bearing debt, excluding overseas debt, Wu said.

A creditor committee is a temporary organization created to help creditors come together to better negotiate with their debtors. As of Wednesday, 44 of the creditors on the committee had agreed to extend the payment deadline on 17.8 billion yuan debt, Wu said.

In early February, China Fortune announced it had defaulted on 5.3 billion yuan in debt. The company attributed the defaults to the economic and industry conditions of the time, coupled with the impact of the Covid-19 epidemic.

To ease creditor concerns, China Fortune in March promised that it would come up with a plan to deal with its debt, including asset and debt restructuring, people close to the issue told Caixin, adding that the company said it will submit the plan to the creditor committee by June 20.

Many creditors only agreed to extend the repayment deadline until June because they still want to see a plan before making any decision about a further extension, sources with knowledge of the matter told Caixin.

China Fortune’s financial strains began to appear last year. In November, it asked Ping An Insurance (Group) Co. of China Ltd., its second-largest shareholder, to lend the company some money so it could repay its debt, sources with knowledge of the matter told Caixin (link in Chinese) previously. China Fortune later asked the Hebei government to reduce fees and taxes the company has to pay. It also asked the government to repay some of its debt to the company, but the government didn’t agree to any of it, the sources said.

A source close to China Fortune previously told Caixin that the Hebei government was under financial pressure of its own and it was unable to offer the company much support.

China Fortune is a privately owned company. One of its major revenue sources is public-private partnerships with local governments in Hebei, where the company works with local governments on different kind of ventures including infrastructure construction.

However, some local governments were slow in paying China Fortune, which is one of the reasons why the company ran out of cash. At the end of September, China Fortune’s accounts receivable — money owed by customers — reached 54.8 billion yuan (link in Chinese), up from 46.9 billion yuan (link in Chinese) at the end of 2019 and 34.4 billion yuan at the end of 2018, according to the company’s earnings reports. A major portion of that money was owed by local governments in Hebei.

Contact reporter Tang Ziyi (ziyitang@caixin.com) and editor Michael Bellart (michaelbellart@caixin.com)

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