December 31 annual reports flooded out of Chinese companies last week, with weak results and red ink dominating the stricken property sector, amid more signs that the government bailout is well underway.
The results are no wonder, given the slide in property through 2023 (though there were a couple of smaller government-supported developers who reported reasonable figures).
Overall, China's housing sales fell 6.5% in 2023 from the previous year and were down 36% from the boom year of 2021 — and that’s the key cause of the problems, with slumping prices, investment and construction.
The rising bad debt situation explains why there is strong pushback from the banks to government pressure to bail out property companies. Two broken giants, China Vanke and Country Garden, both reveal details of government help through one-off investments or special funding for hundreds of selected developments.
A third property owner/investor, China Wanda, saw a massive $US8 billion deal revealed on the weekend that is in effect a bailout. This ends a very messy corporate deal that went very bad and threatened the country’s reputation.
The bailout news gained credence with broken developer Country Garden revealing it has 272 residential projects ready for government financial support as at March 15. That’s despite the company staggering towards a cliff after failing to release its results on time by the end of last week.
And Reuters confirmed last week that bailout money will end up coming from state-controlled banks and other investment groups.
China Vanke got support from its government shareholder in Shenzhen for a one-off property investment trust float that will raise fresh funds ($US150 million) to help the company cut debt by $US14 billion over the next two years. Other deals from the company are in the pipeline, according to Chinese business media.
China Vanke’s sales fell last year and profit halved, while Country Garden faces its shares being suspended this week after it failed to make the March 29 deadline for Chinese companies to file their 2023 results.
Country Garden, now the country’s largest private property developer after the collapse of Evergrande, claimed it needed to collect more information to make appropriate accounting estimates and judgments.
The company defaulted on $US11 billion of offshore bonds late last year and faces a Hong Kong court action seeking its liquidation (like what happened to China Evergrande in late January).
Beijing-based Sunac China, a former top-5 developer and the first developer to complete an offshore debt restructuring in the crisis, saw an improvement in 2023, with a net loss of eight billion yuan versus a net loss of 27.7 billion yuan in 2022.
Reuters reported that smaller property groups Kaisa Group and KWG Group saw widening net losses of 19.9 billion yuan and 18.7 billion yuan, respectively, in 2023.
But some state-owned developers are faring better as some homebuyers turn to policy-supported companies to make sure their homes are completed.
China Overseas Land & Investment said its net profit rose 10% last year to 25.6 billion yuan, though core profit eased slightly by 3.2% to 23.7 billion yuan.
**********
On the weekend, a foreign investor-driven settlement of a messy arrangement with China Wanda and its former founder, with money from oil-rich Gulf investors (no doubt organised at a government-to -government level) and additional Chinese government involvement.
A group of investors led by Asian-facing private equity firm PAG said it paid 60 billion yuan ($US8.3 billion) for a 60% stake in Chinese property giant Dalian Wanda's shopping mall unit.
Dalian Wanda will retain 40% in Newland Commercial Management, the newly created holding company of Zhuhai Wanda Commercial Management Group Co, Saturday's statement said.
CITIC Capital, the Abu Dhabi Investment Authority, Mubadala Investment Company and Ares Management Corporation were also joint investors in the deal (and believed to be investors in PAG, which claims involvement from around 300 groups in the $US55 billion under management).
"We like the competitive edge and first mover advantage that Newland has built and we think these advantages will allow it to generate stable and growing cash flow to investors," said David Wong, partner and co-head of private equity at PAG.
The company manages 496 large-scale shopping malls in 230 cities across China, with about 70 million square metres of floor space under management.
Bloomberg and Reuters reported that the deal wraps up a messy situation triggered by a deal first announced last December.
The upshot is that, after four months of fiddling around, Wanda founder Wang Jianlin has finally given up control in Zhuhai Wanda as part of a landmark agreement to avoid repaying pre-IPO investors. The company didn’t have enough money.
Zhuhai Wanda was supposed to list in Hong Kong in 2021, subject to clearance from the Chinese government. However, that clearance was never given, and the company and Wang were on the hook for billions of dollars owed to the investors in the IPO.
Under the terms of the original investments, Wanda agreed to repay investors 30 billion yuan ($US4.2 billion) plus interest if Zhuhai Wanda could not get its initial public offering done by the end of 2023.
When that deadline came and there was still no listing, a new agreement was proposed where Wang relinquished control and pre-IPO investors took a bigger stake — 60% combined. The pre-IPO investors included PAG, which put in $US2.8 billion, Ant Group Co, Citic Securities Co and Tencent Holdings Ltd.
The role of the Chinese government in the deal is underlined by the appearance of CITIC Capital as an investor — it is controlled by China’s Ministry of Finance.
US-based Ares Management bought Capital's $A7 billion infrastructure debt arm in December 2021. That was a second prize as Ares — which paid $430 million — had previously been involved in drawn-out and unsuccessful takeover talks with AMP.
Earlier this year, Ares announced that it had raised $US1.7 billion for an Australian private credit fund.
Mubadala Investment Company is one of the sovereign wealth funds (SWF) of Abu Dhabi. It already has an extensive investment portfolio in China in logistics, technology, recruitment, drugs, online commerce and trade. It controls the US private equity and investment group Fortress, with more than $US50 billion under management.
Abu Dhabi Investment Authority is the main SWF of Abu Dhabi, with a reported $US850-plus billion under management.
