Exclusive | Tahoe, Chinese developer at biggest risk of default, tries to offload a dozen projects to ease liquidity stress
- Tahoe Group is seeking to sell 12 development projects it paid at least 40 billion yuan for in the last two years
- Developer’s weak turnover is partly down to its exposure in big cities, where regulatory controls are tight
Chinese developer Tahoe Group is seeking to offload a dozen projects that it bought for at least 40 billion yuan (US$5.97 billion) in the past two years, according to sources familiar with the matter.
It is the latest builder to resort to asset sales to raise cash in the face of mounting debts.
China’s 20th largest developer according to consultancy CRIC, Tahoe is a poster child of the sector’s debt-fueled growth, its expansion and ambition having outstripped most of its peers.
Tahoe emerged as the Chinese developer most at risk of defaulting on its debt in a Bloomberg poll of analysts and portfolio managers in January.
The 12 projects on offer, mainly residential developments with some attached commercial space, are in the cities of Guangzhou, Hangzhou, Shenzhen, Nanchang, Kunshan and Zhongshan. According to descriptions viewed by the South China Morning Post, they are under development, with the earliest batch of homes already on sale. The most recent plot was acquired in December.
Tahoe spent at least 40 billion yuan on the plots in 2017 and 2018, according to the Post’s calculations.
A senior executive with a private equity real estate fund said she had been approached by a third party about the sale of these projects. Declining to be named, she said she was not keen as she thought the projects would be difficult to sell.
This is not the first time the Fujian-based developer has resorted to asset sales to ease liquidity stress. Last December it sold three subsidiaries for 635 million yuan, and transferred a Beijing project to a trust company to secure 3.5 billion yuan of financing. Its largest shareholder and controller Huang Qisen had pledged his 49 per cent share of the company for financing.
“China’s property sector is debt-laden but in terms of risk-taking and slow cash collection, Tahoe stands in its own league, so I don’t think the case spells bigger trouble for the whole sector,” said Liu Feifan, a property analyst at Guotai Junan International.
Tahoe Group declined to comment on the asset sales, but said it would disclose any major sales to the stock exchange.
The Bloomberg poll gave Tahoe a one-year default risk of 6.75 per cent, the highest among the 47 developers with a market value of more than US$2 billion. The builder’s bond is considered the riskiest among all corporate notes, with an average 0.97 per cent chance of default.
Moody’s downgraded Tahoe’s rating by a notch to B3 with a negative outlook in November, citing “weak financial management and its heightened debt-refinancing risk”. That was mainly attributed to its weak cash collection, meaning it struggled to generate cash from its saleable resources.
“Tahoe’s slow cash collection is a result of its focus on selling mid-to-high-end properties in major cities. In these cities, developers require a long time to register sales and obtain mortgage disbursements from banks, given the tight regulatory controls,” said Wenhan Chen, a Moody’s analyst.
According to its most recent earnings report, as of September 30 Tahoe’s cash of 17.4 billion yuan was not enough to cover its short-term debt of 64.7 billion yuan. Its liability was over four times its net equity.
