Yang Qian of Leju Institute of Finance and Economics

At the beginning of the new year, Shekou is attracting investment.(001979.SZ) "transfer red envelopes" were given to employees.

On January 15, China Merchants Shekou announced that it had recently completed the non-tradable transfer of ownership of the first phase of the employee stock ownership plan, involving 1181 employees and 11.016699 million non-tradable shares. Four years ago, employees of China Merchants Shekou subscribed for 28.3368 million shares at a price of 23.6 yuan per share, all of which were lifted on January 14, 2019. During this period, China Merchants Shekou paid a total of four dividends, which were 2.6 yuan for 10 parties, 5 yuan for 10 parties, 6.2 yuan for 10 parties and 7.9 yuan for 10 paid. after the dividend, the cost of employee shareholding dropped to 21.4 yuan per share.

By the close of trading on January 17, the share price of China Merchants Shekou was 18.87 yuan per share, and the employee shareholding was collectively tied up, resulting in a floating loss of about 11.82%.

The performance of the stock price is closely related to the fundamental data of the real estate company. According to the third quarterly report of 2019, the revenue of Merchants Shekou in the first nine months was 25.543 billion yuan, down 24.39% from the same period last year, while the net profit of returning to the mother was 5.09 billion, down 38.5% from the same period last year While performance fell, short-term borrowing continued to rise.

As of the end of September 2019, the short-term loan of China Merchants Shekou was 28.628 billion yuan, up 71% from the end of 2018 and the highest in nearly three years.

An overview of bond issuance

The average interest rate is 3.57%. Top placement of corporate bonds.

According to statistics, China Merchants Shekou issued 16.65 billion yuan of bonds in 2019, including 5.6 billion yuan of corporate bonds, 6 billion yuan of short-term bonds, 1.05 billion yuan of ABN and 4 billion yuan of perpetual bonds, with an average interest rate of 3.57% and an average maturity of 2.59 years (excluding perpetual bonds).

As an established central enterprise, the low financing cost of attracting investment from Shekou is to be expected. According to Leju Finance's 2019 list of financing interest rates of Chinese real estate enterprises, among the 100 billion real estate enterprises, the bond issuance interest rates of China Merchants and China Resources, Poly and Jinmao are all less than 4 per cent. Slightly different is that Merchants Shekou in the maintenance of low interest rates at the same time, corporate bonds in a row over-allotment, top-notch allotment.

It has been disclosed that the first issue of corporate bonds in June 2019 is planned to issue 500 million yuan, and the actual issue is 3.5 billion yuan, which is six times over-allotted; the second issue of corporate bonds issued in July 2019 is planned to issue 500 million yuan, and the actual issue is 2.1 billion yuan, which is the top allotment.

Debt structure

More than 50% of the interest-bearing bonds issued in three consecutive short-term short-selling bonds will mature within two years.

In addition to low interest rates and over-allotment, China Merchants Shekou issues a variety of bonds, involving corporate bonds, short-term securities, home purchase tail asset-backed bills (ABN) and perpetual bonds, mainly medium-and short-term bonds within 3 years, with only one corporate bond with a maturity of 5 years.

According to the bond structure, in 2019, China Merchants Shekou issued a total of 16.65 billion yuan, of which short-term securities were 6 billion yuan, accounting for 36.04%; corporate bonds were 5.6 billion yuan, accounting for 33.63%; perpetual bonds were 4 billion yuan, accounting for 24.02%; ABN 1.05 billion yuan, accounting for 6%, and short-term securities accounted for the largest proportion.

However, according to the 2019 list of financing rates of China's Real Estate Enterprises, the amount of bonds issued by various types of bonds is in the following order: foreign debt > corporate bonds > private debt raising > medium-term bills > short-term bonds > targeted instruments, and short-term bonds account for only 4.27%. It can be seen that, compared with the majority of housing enterprises, Merchants Shekou short margin issuance is higher.

Low cost and large amount of fund-raising are the advantages of short-term short-selling and short-selling. The interest rates of the three short-term securities issued by China Merchants Shekou in 2019 are 2.98%, 2.8% and 3.14% respectively, and the maximum amount of a single issue is 3.5 billion yuan.

In addition, short-term securities rolling issuance mechanism can make housing enterprises "short-term debt long-term use". According to the current regulations, the people's Bank of China manages the balance of financing bonds issued by enterprises, and the regulatory authorities only need to control that the outstanding balance of financing bonds does not exceed 40% of the enterprise's net assets. The issuance time of the three issues of China Merchants Shekou in 2019 is January, April and July respectively, of which the first two issues are issued for 120 days and 90 days, and the redemption time is May and July respectively. Before the expiration of the current short-term short selling, a new issue of short-term short selling has been issued. According to the prospectus, the funds raised by short-term securities are mainly used to repay interest-bearing debt.

The frequent use of short-term debt has put pressure on the short-term debt service of China Merchants Shekou. A total of five bonds mature in 2020, plus all the stock bond interest payable, the cash flow of debt repayment will reach 8.35 billion yuan in 2020.

And so on, from 2021 to 2024, the cash flow of Merchants Shekou debt repayment was 3.95 billion yuan, 4.883 billion yuan, 4.334 billion yuan and 4.118 billion yuan. The cash flow of debt service in 2020 is the highest in the next five years, twice as much as in 2021.

It was reported in 2019 that all interest-bearing liabilities such as comprehensive bank loans. China Merchants Shekou's total interest-bearing liabilities in the past two years was 72.983 billion yuan, accounting for 56.66% of the total interest-bearing liabilities, and the debt repayment pressure was concentrated in 2020-2021.

debt paying ability

A number of debt service indicators are lower and sustainable debt is adjusted to adjust the debt ratio.

According to the short-term debt service indicators in the past three years, the current ratio has dropped from 1.71 to 1.48, the current ratio has dropped from 0.73 to 0.55, and the cash ratio has dropped from 0.27 to 0.23. A number of indicators have continued to decline.

However, the asset-liability ratio of China Merchants Shekou is relatively stable and has been below the industry average for the past three years, thanks to perpetual debt.

In 2019, China Merchants Shekou issued 4 billion yuan of perpetual bonds, which were included in the "other equity instruments" of shareholders' equity. In this way, it will not dilute the original shareholders' rights and interests, but also play a role in reducing leverage. By the end of September 2019, the total perpetual debt of China Merchants Shekou was 11 billion yuan, with an asset-liability ratio of 75.62%. If perpetual debt is included in liabilities, the real asset-liability ratio will rise by two percentage points to 77.7%.

Sustainable debt is not only a weapon to reduce leverage, but also a "profit black hole" for real estate enterprises. The interest expense of perpetual debt is not included in the cost of borrowing, but it will engulf the net profit of real estate enterprises as part of the profit distribution.

In addition, housing companies have to bear the risks brought by the "interest rate jump" mechanism. Perpetual bonds do not have a clear maturity date, but there will be an issuer's redemption option, interest rate reset and deferred interest payment terms. After holding for a certain period of time, the issuer may choose to redeem the bond. If it is not redeemed on the redemption date, the coupon rate will "jump" sharply, and housing companies will bear higher interest rates, which may have a knock-on effect on the repayment of other debts.

As of the third quarterly report of 2019, China Merchants Shekou has not disclosed specific data such as perpetual debt interest rates and interest payments. However, the cash flow statement shows that the cash outflow from fund-raising activities increased by 53.86% to 87.21 billion yuan compared with the same period last year, of which the total cash paid for the distribution of dividends, profits or interest payments was 12.18 billion yuan, an increase of 22.2% over the same period last year.