China Property

Is Chinese developer Glorious Property really in a bad shape, or is it all a ploy?

PUBLISHED : Tuesday, 17 May, 2016, 5:06pm
UPDATED : Tuesday, 17 May, 2016, 5:06pm

It might be a splendid time for Chinese developers in big cities like Beijing and Shanghai currently witnessing a real estate revival, but not so for Glorious Property. Not at least on paper.

Controlled by billionaire Zhang Zhirong, Shanghai-based Glorious has come a long way from being among the Top 50 Chinese developers to one reporting its second consecutive year of massive losses and failing to repay debts. That, however, has not deterred the company from trying to go private, which, analysts say, is part of its apparent problems.

The developer’s losses last year widened to 3.9 billion yuan. It also missed debt repayments amounting to 4 billion yuan last year, showed its annual results, which were postponed to April 15. External auditor PwC has refused to give its opinion on Glorious’ 2015 financial statement.

But its mounting losses and liquidity crunch have left the market confused as China’s property sector overall has been on a recovery path since the second half of last year, especially in the builder’s hometown of Shanghai.

Glorious Property Holdings posts 2.99bn yuan in losses, from 292.1 million yuan profit in 2013

“Theoretically, it can repay the money as it has some good projects,” said Christopher Yip, property analyst at Standard & Poor’s.

The developer, which builds homes mainly in Shanghai and the Yangtze River Delta, has some projects and land bank in China’s financial capital, including a luxury project named Shanghai Bay.

Shanghai Bay Phase II is going for an average of 130,000 yuan per square metre since January, nearly double the price of the units at its Phase I project last year.

As of the end of last year, the group had a land bank of 8.8 million square metres, sufficient for development needs over the next five years.

As the company has not accelerated its projects, its land bank shrank just 0.4 million square metres to 14.8 million in 2014. the company did not add any land parcels that year. That has meant the developer’s sales have continued to slide from its peak in 2011, with contracted sales slumping nearly 50 per cent to 4 billion yuan, in 2014.

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“Its land development is very slow. Either their plots have their own problems or the major shareholder is intentionally hiding the prime land in order to buy out the company on the cheap,” said a property analyst who did not want to be identified.

Owner Zhang had proposed to take Glorious private in 2014 but failed as minority shareholders voted against the plan. The company has been saying a privatisation is still “under consideration by the controlling shareholder”.

Chinese media in 2014 asked if Glorious was intentionally slowing sales to hide its real capability to engineer a cheap privatisation. It noticeably stopped disclosing its monthly contracted sales figures since November, when sales started rebounding. In Glorious’ last disclosure, it said sales in October jumped 206 per cent year on year.

The company’s stock has shrunk more than 30 per cent in the past year. Its Friday closing price of HK$0.81 is 82 per cent below its initial public offering price of HK$4.4.

By the end of last year, Glorious’ current borrowings mounted to 25.5 billion yuan, compared with its cash on hand of only 385 million yuan.

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“In the current situation, it would be hard for Glorious to raise money for privatisation (because of debt default). Lowering the stock price is a much easier way,” said Franco Leung, a property analyst at Moody’s.

The 44-year-old Zhang is a controversial Chinese billionaire who holds 68 per cent of Glorious but stepped down from his role as chairman in 2012. He also owns the troubled Rongsheng Heavy Industries, once China’s largest private shipbuilder. The company almost went bankrupt but changed its name to China Huarong Energy in 2015 to invest in oil and natural gas projects. Zhang has been accused by US regulators of making illegal profits through insider trading in a cross-border acquisitions deal in 2012.

In past weeks, Glorious’ 2018 dollar bonds have recovered to the level seen before the company posted its losses, in an expression of stakeholders’ confidence in the borrower. That may also indicate that Glorious is better placed than what the bottom line suggests.

Glorious did not immediately respond to enquiries from the South China Morning Post.