Kenny Chan thrives in new role with Hong Kong’s Future Land Development
Kenny Chan, a financial expert with 10 years experience behind him, was appointed as Executive Director and Vice President of Future Land Development in March 2015.
In less than a year, he has successfully helped the company realise a shift in its listing from China’s B-share market to the A-share market and issue an offshore US$250 million bond with a much lower cost.
Before his current job, Chan was Chief Financial Officer of mainland developer Times property and a manager at KPMG. He talked to Property Post about Future Land’s financing plans and future strategies.
Q: With more domestic financing channels opening up, how would Future Land adjust its financing structure?
A: We are very cautious on our lending. Though we issued domestic corporate bonds, domestic private bonds and offshore bonds this year, those were used for redemption of our existing development loans (that have a higher interest rate) and offshore high yield bonds, rather than for real estate investment, so the company’s leveraging was actually down.
Besides, since we can issue domestic bonds now, we have stopped applications for any development loan, which is “restricted cash” and cannot be freely used. Less restricted cash means less debt. In the future, we hope to use our cash on hand to develop homes.I expect our debt ratio as of the year end will decrease compared to the first half.
Q: Will you reduce offshore bond issuance?
A: Yes, we will reduce that and increase offshore bank loans instead as the rate is cheaper. Banks in Hong Kong have noticed the sector’s recovery this year and shown interest to give credit to developers. It doesn’t mean we would give up foreign investor channels. Actually, I have flown to London six times, the US five times and Singapore five times this year to visit investors.
I have felt strongly the importance to communicate and build trust with investors since last year. Investors are passive and they have become very cautious after Kaisa’s default in 2014 . You must be transparent and take the initiative to report the company’s development updates to investors frequently, not just appear when you need money. I think that’s why our recent issuance of dollar bonds was oversubscribed 10 times and was placed at a rate as low as 6.25 per cent.
Q: What will be your focus in work next year?
I am not satisfied with our current ratings yet and hope to improve them next year so that our offshore borrowing cost can be further reduced. After being listed in A-shares, our market capitalization and investor base would be largely broadened and there will be room for further improvement in our ratings.
Rating agencies usually evaluate four categories: the execution ability of the management team, market forecast, sales growth and financial performance. Our management is devoted and focused on our core business, sales are growing fast, the market is recovering, gearing is down, so I’m pretty confident our ratings can be raised. I will continue to make sure of our financial strength and regular communications with the rating agencies.
Q: What is your outlook for the mainland property market next year?
The central government (in China) has launched many policies to benefit the real estate sector this year and I expect this trend will continue.
With the recovery of market sentiment, our sales remained strong in first- and second-tier cites and picked up in third- and fourth-tier cities in the second half (of the year). Our September contract sales reached its record high in 22 years. Further, our sales collection rate rose to more than 80 per cent as market liquidity got better. Now we can receive house payments from banks within one or two months.
Q: What would be Future Land’s development focus in the future?
We have moved our focus from the Tier 3 city of Changzhou to Tier 1 and Tier 2 cities including Shanghai, Nanjing and Suzhou as they have strong demand. Already about 65 per cent of our sales are contributed from these three cities. The price and transactions are strong there and we plan to buy more lands at the cities to improve our gross profit.
Q: How is your property management business?
As a part of our asset-light strategy, properties built by us are all managed by ourselves. Our property management team has expanded to thousands of employees. In the past, we only did homebuilding, now we do hotels, office buildings,shopping malls. Our flagship commercial complexes brand “Injoy” had just two to three projects back in 2013. By the end of this year, it will have five to six projects completed and 20 projects under construction.
We have been in internal discussions about spinning off our property management arm as it has already met the related requirements. The segment’s financial performance and legal structure make it possible to separate list in either mainland China, Hong Kong or other stock markets. But we don’t have a timetable for the spin-off yet.
Most of our commercials are located in second-tier cities. We don’t develop malls in the CBD in first-tier cities because there is a bit overcapacity. Our commercial complexes model is same as Hong Kong’s City Plaza in Taikoo, combining shopping malls and office buildings with big residential communities. The shopping mall’s operation cost comes from new home sales surroundings, that’s why our debt ratio is not high.
Our revenue from rents is picking up fast as we have more and more malls. Rental income was 100 million yuan last year. I expect this number would double in the near future. The gross profit ratio of rentals is very good, the industry average is 80 per cent and we do better.