Caixin
Sep 21, 2021 08:29 PM
BUSINESS

Developer R&F Properties to Sell Services Unit to Rival to Repay Debt

Chinese developer Guangzhou R&F Properties Co. Ltd. is selling its property management unit to a bigger rival as well as raising funds from its two major shareholders in an attempt to find cash from alternative sources to repay its debt.

CG Property Services HK — a unit of Country Garden Holdings Co. Ltd., China’s largest property developer by total sales — will acquire Wealth Best Global from R&F Property Services for up to 10 billion yuan ($1.5 billion), according to a filing to the Hong Kong Stock Exchange after the close of the market on Monday. R&F Property Services, which submitted an IPO application in Hong Kong in April for a listing in the third quarter, manages R&F’s various real estate projects.

In a separate statement filed to the bourse on the same day, R&F said it will receive HK$8 billion ($1 billion) in financing from its two major shareholders, co-chairmen Li Sze Lim and Zhang Li, over the next one to two months.

With the funds, the company said it “expects to have sufficient liquidity to address obligations that will mature in the short-term.” R&F’s shares fell 7.3% to close at HK$4.29 on Monday before rising more than 14% to HK$4.9 on Tuesday morning.

R&F CHART0921_1

The two announcements had followed a wild day of selling on Monday triggered by a number of risks, including looming deadlines on China Evergrande Group’s offshore bonds and the financial consequences of its prospective collapse.

The Hang Seng Property Index fell 6.7% on Monday for its biggest drop since May 2020, according to Bloomberg data, led by developers including Henderson Land Development Co. Ltd., which plunged 13%, and Sun Hung Kai Properties Ltd., which sank 10%. Ping An Insurance Group Co. of China Ltd. fell 5.8%, following concerns about its exposure to Evergrande debt, which the insurance giant said on Friday it had “zero exposure” to.

Payments due Thursday by Evergrande include $83.5 million in interest on an 8.25%, five-year dollar bond, according to Bloomberg. The world’s most indebted developer needs to pay a 232 million yuan coupon on an onshore bond the same day.

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Cover Story: How Evergrande Could Turn Into ‘China’s Lehman Brothers’

In a report dated Monday, S&P Global Ratings said it does not expect the Chinese government to provide any direct support to Evergrande, and believed authorities would “only be compelled to step in if there is a far-reaching contagion causing multiple major developers to fail and posing systemic risks to the economy.”

“Evergrande failing alone would unlikely result in such a scenario,” the global ratings agency said. Evergrande’s shares in Hong Kong closed down 10.2% at HK$2.28 on Monday.

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R&F Properties, established in 1994 and listed in Hong Kong in 2005, is ranked 30th among the largest real estate companies in the country based on total sales from January to August, according to the China Index Academy.

For the six months ending June 30, the company’s interest-bearing liabilities reached 143 million yuan, of which short-term bearing liabilities totaled 51.9 billion yuan, according to its interim report released late last month.

Revenue in the first-half increased 18% to 39.5 billion yuan, while net profit fell 18.8% to 3.18 billion yuan. The company had a cash balance of 28 billion yuan.

For the second half of the year, R&F said it will continue to focus on managing its liquidity to improve its overall credit profile through contracted sales and asset sales. Prior to selling its property management unit, it had sold equity and assets, as well as carried out large-scale layoffs.

The company issued a $200 million three-year bond at an interest rate of 8.875% in September 2018 through its offshore financing and investment platform, Easy Tactic Ltd. The bond is due to mature in a week.

Earlier this month, Moody’s Investors Service downgraded R&F by one notch to B2, citing the company’s increased refinancing risks attributed to “weakened access to offshore funding and sizable amount of maturing debt.”

Contact reporter Kelsey Cheng (kelseycheng@caixin.com) and editor Michael Bellart (michaelbellart@caixin.com)

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