The company disclosed a preliminary proposal for a comprehensive solution to foreign debt and the latest business developments. As of June 30, 2023, the company's foreign debt accounts for approximately $7 billion in total interest-bearing liabilities (excluding accrued interest).
A preliminary proposal for a comprehensive solution to foreign debt was announced, with a target debt reduction of 3.3 to 4 billion US dollars. Since 2022Q3, the company has faced severe domestic and foreign debt repayment pressure, and announced the suspension of payment of principal and interest on all foreign bonds in early November '22. In terms of domestic debt, the 7.18 billion yuan domestic debt due in 2023 has all been rolled over. In terms of foreign debt, the company submitted a comprehensive solution to the overseas liquidity situation, providing debtors with multiple options: converting foreign debt to a pure rollover without principal reduction (in the form of notes and loan credit, respectively), an rollover with a slight principal reduction, an extension with a sharp reduction in principal, and an extension with partial share conversion. As of the end of June 2023, the company's foreign debt (excluding accrued interest) was approximately US$7 billion. The company aims to deleverage its consolidated balance sheet of about US$33-40 billion through elements such as principal reduction and share conversion in the options.
Gradually selling assets to repay debts, and ensuring delivery is the main task. Under the double pressure of performance and debt, the company disposed of multiple assets, accelerated sales and cash payments, and made every effort to secure property handover and stable operation. As of June 30, 2023, the fair value of the company's investment properties was approximately RMB 45.625 billion. The gradual sale of some of its investment properties and foreign assets is expected to increase overall working capital by about $120-14 billion, and the total cumulative cash flow from repayable overseas debts is estimated to be around RMB 30-35 billion. In terms of guarantee delivery, Xuhui delivered a total of about 118,000 property units in 2023; in 2024, the company is aiming to deliver 80,000 units.
Sales of the 23-year contract declined year on year, and it is expected to pick up after the implementation of the debt restructuring plan. National commercial housing sales fell 6.5% year-on-year in 2023. Meanwhile, the company achieved cumulative contract sales of about 70 billion yuan throughout the year, down 43.6% from last year. The company's sales situation is not as good as that of the industry. The main reason is that buyers are concerned about the company's debt problems, and difficulties in selling new homes continue to make the liquidity problem of housing enterprises difficult to solve. After the company's debt restructuring is implemented, overseas debt repayment pressure will be effectively relieved, which is conducive to a recovery in future sales.
The rating was lowered to neutral, and the target price was lowered to HK$0.34. According to the latest operating conditions in the company's 23 mid-year report, we adjusted the forecast for sales growth rate, gross margin and expense ratio. The adjusted net assets per share for 23-25 were $1.63, 1.22, and $0.82 (the original forecast was $3.40 and $3.80), respectively. Comparable to the company's average PB in 2024, the average PB value for 2024 was 0.25 times, corresponding to the target price of HK$0.34 (1 HKD = 0.907 yuan).
Risk warning: The debt restructuring plan did not advance as expected, leading to changes in assumptions. The implementation of the support policy fell short of expectations. The credit risk of housing enterprises has further expanded. Asset impairment losses have increased. Risks of sustainable operations.