Source:
https://scmp.com/business/china-business/article/3204937/china-fortune-land-raise-us178-billion-asset-sales-repay-creditors
Business/ China Business

China Fortune Land to raise US$1.78 billion from asset sales to repay creditors

  • Cash-strapped developer to sell four projects to state-backed rival China Resources Land to help repay creditors
  • Company expects to take a loss on the transaction, with payments to be staggered over four years
View of the stand of China Fortune Land Development at a Shanghai expo in March 2019. Photo: AFP

China Fortune Land Development has agreed to sell its interest in four projects as part of an ongoing effort to pare its debt burden since capitulating under Beijing’s “three red lines” policy to curb excessive leverage among weak developers.

The developer will sell its entire interest in the assets at a token sum of 1 yuan each, to Hong Kong-listed firm China Resources Land, according to exchange filings in Shanghai and Hong Kong. The state-backed buyer has agreed to settle 12.4 billion yuan (US$1.78 billion) of debt tied to the assets.

China Fortune expects to take a 2.13 billion yuan loss in the transaction as the effective price is below the book value of the assets, it said. The proceeds would be used to repay creditors, it added.

The transaction is to be completed in several phases, subject to conditions and state approvals, over four years. The first payment of 4 billion yuan is expected to be made in March 2023 while the final payment of 2.4 billion yuan is due in December 2026, the filings showed.

A view of China Resources Land logo in Chongqing, China. Photo: Getty Images
A view of China Resources Land logo in Chongqing, China. Photo: Getty Images

Beijing began squeezing weak developers in August 2020 when it imposed leverage thresholds to control systemic risk in the industry, shutting them out of the loan and bond markets for fresh capital. The policy has since sent scores of developers into crisis, triggering more than US$20 billion of debt default along the way.

China Fortune, which focuses on developing industrial estates and urban projects, is among the first batch of defaulted developers. It released a debt restructuring proposal in October 2021 to trim its 219 billion yuan of liabilities.

The asset sales could raise 75 billion yuan, of which 57 billion yuan would be used to repay creditors, it projected. Since the restructuring proposal, the troubled developer has announced about 10 asset transfers, publicly disclosing only about 3 billion yuan of proceeds.

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China Fortune has agreed to settle 126.6 billion yuan of debt based on signed agreements as at November 30, while 60.2 billion yuan remained outstanding, according to a company update on its debt workout earlier this month.

The latest assets to be sold to China Resources Land include two projects in Wuhan in central Hubei province, one in Nanjing in eastern Jiangsu province and a joint-venture in Shenzhen in southern Guangdong province, according to exchange filings.

Sales in all four projects have turned for the worse in the first half of this year because of an economic slowdown. China Fortune has also halted construction on some of its projects since falling into a liquidity crunch, according to its interim report published in late August.