Author |Xiong Dai

Data Support | Pythagorean Big Data

Source | Gelonghui Mine Exploration Area (ID: glh-tlq)

On the evening of September 9, 2020,Sunshine CityAn announcement was issued. The company introduced Taikang Insurance as the second shareholder, and the two sides signed a ten-year profit gambling agreement.

In the context of strict supervision of the “Three Red Lines,” Sunshine City, which is thought to be one of the representatives of radical Fujian housing enterprises in the past, gambled quite aggressively. The profit from gambling reached 94.223 billion yuan in ten years. Behind this ferocious gambling, the actual debt size of Sunshine City may also be heavier than in the report.

How big is Sunshine City's actual debt? Let's talk about Sunshine City's financial magic.

1. Financial technology of “real debt of famous stocks”

Because of well-known motives, some listed housing enterprises like to hide the actual financing they receive as debt through minority shareholders' equity accounts, so minority shareholders' rights in the financial reports of listed housing enterprises are a fun subject.

As of June 30, 2020, Sunshine City's net debt ratio was 114.98%. This net debt ratio itself is not low, but we have noticed that Sunshine City's minority shareholders' equity is also growing rapidly.

At the end of 2015 and the end of 2016, Sunshine City's minority shareholders' balance increased by 163.39% and 231.17%, respectively. By the end of 2017, the minority shareholders' equity balance surpassed 10 billion for the first time, about 60% of the equity returned to the mother. By the end of June 2020, this figure reached 27.6 billion yuan, which is comparable to Sunshine City's equity returned to the mother (27.9 billion yuan), and the ratio between the two was about 1:1.

Minority shareholders' equity is growing rapidly, and the amount of money as a proportion of owners' equity does not necessarily mean that it is a “real debt of famous shares,” but let's use two dimensions to demonstrate that Sunshine City probably has “real debt for famous stocks,” and this scale is quite large.

First, the first dimension is that while the minority shareholders' equity has continued to grow in recent years, Sunshine City has also continued to buy minority shareholders' shares since then, which is reflected in the cash flow statement details of the cash outflow from purchasing minority shares. This is probably a cash repurchase of nominal minority shareholders' shares.

By reviewing the cash flow statement and the details of the cash outflow related to the purchase of minority shares, we found that in 2017, 2018, 2019 and the first half of 2020, Sunshine City paid as much as 388 million, 2.03 billion, 2,129 billion, and 2.144 billion, respectively. In recent years, huge annual cash expenses were spent on purchasing minority shares, indicating that Sunshine City probably has large-scale real debt for famous stocks, and then repurchases these minority shares in cash.

In another dimension, although the amount of minority shareholders' equity is very large, the return on Sunshine City's minority shareholders' equity was far lower than the return corresponding to the equity returned to parent shareholders during the same period.

For example, at the end of 2018, the amount of minority shareholders' equity was 1.27 times that of minority shareholders' equity, but the return for minority shareholders in that year was only 4.92%, far worse than the return of 15.03% for the same period. At the end of 2019 and the end of June 2020, the ratio of return to parent shareholders was about 1:1, but the minority shareholders' return for the same period was only 1.25% and 0.24%, which was further reduced by the return to parent shareholders by 180,000 miles.

The return rate for minority shareholders of Sunshine City is far lower than that of shareholders of listed companies. Combined with the large cash outflows from purchasing minority shareholders' shares that have occurred every year in recent years in recent years, we believe that it is very likely that Sunshine City will finance through the “real debt of famous shares” method, and this amount should be quite large.

The perpetual bonds of listed housing companies are also an artifact worth playing with. Perpetual bonds have no clear maturity date; they only need to pay interest. Housing enterprises often include perpetual bonds in their equity.

Specifically, according to the Sunshine City report, as of the end of June 2020, Sunshine City had a perpetual debt of 5 billion dollars in owners' equity, and this clearly conceals Sunshine City's true debt ratio. Furthermore, the company's interest payments on perpetual bonds are treated as profit distribution, so the profit statement is also better. This can be said to be a magical killer of housing enterprise financing.

II. Combining nuance and selectivity of guarantees

Sunshine City's external guarantee is also not that sunny; there may be some flaws in this.

Looking at the guarantee balance, as of June 30, 2020, Sunshine City's guarantee balance reached 99.746 billion yuan, which is 3.58 times the net assets (note: equity returned to the mother), closely following that of the same Fujian housing enterpriseTahoe GroupAfter that (4.45x), while synchronizingVankeThe guarantee balance only accounts for 13.10% of net assets.

Among them, the debt guarantee balance provided by Sunshine City to insured companies with a balance ratio of more than 70% reached 99.430 billion, which means that among Sunshine City's guaranteed companies, the balance ratio of over 70% accounts for the vast majority. Corresponsively, Sunshine City's guarantee compensation risk is not small.

Generally speaking, guarantees for housing enterprises are mainly to obtain project financing. Guarantees for subsidiaries are generally reflected in the “interest-bearing liabilities” of bond financing excluded from consolidated statements (note: debt-issuing financing generally does not require a guarantee), and guarantees to unconsolidated external companies are not reflected in the “interest-bearing liabilities” of the company's consolidated statements. If the amount of the company's external guarantee exceeds the amount of “interest-bearing liabilities” excluding bonds, this indicates that the company may provide financing guarantees to joint ventures; in fact, the liabilities related to this guarantee are hidden in the listed company's tables.

As of June 30, 2020, Sunshine City's final financing balance was $112.161 billion, of which the total final financing balance of bank loans and other financing was $74.429 billion. Compared with the guarantee balance of 99.746 billion yuan, there was also a difference of about 25.3 billion yuan, indicating that part of Sunshine City's external guarantee was due to joint venture financing.

According to the 2020 Interim Report, Sunshine City's total external guarantee balance excluding guarantees to subsidiaries is $13.367 billion. This section is mainly joint ventures that are not listed.

As of June 30, 2020, Sunshine City had 155 joint ventures. Of these 155 joint ventures, 55 held 50% or more of the shares. Of these, 14 had more than half of the voting rights. However, Sunshine City did not combine these companies.

Sunshine City did not disclose two reasons. One is that it cannot control the investee unit according to the company's articles of association, and the other is that it cannot control the invested unit according to the provisions of the cooperation agreement.

We know that the company's articles of association or cooperation agreement stipulate that there is a large space for adjustable operation, and this is also related to merger or publication. If these companies do not share, the debt financing of these joint ventures will naturally be “hidden”.

On May 27, 2020, Sunshine City received a regulatory letter from the Shenzhen Stock Exchange. One reason is that between 2015 and 2020, Sunshine City provided financial support to real estate project companies that were not within the scope of the company's consolidated statements or had a shareholding ratio of no more than 50%, but failed to fulfill the relevant review procedures and disclosure obligations.

Why did Sunshine City fail to comply with relevant review procedures and disclosure obligations by providing financial support to real estate project companies that are not within the scope of the consolidated statement or whose shareholding ratio does not exceed 50%? This should be more than just a letter disclosure issue.

Taken together, as of June 30, 2020, Sunshine City provided a joint liability guarantee of 13.367 billion dollars for companies other than consolidated companies (mainly joint ventures). This method not only conceals the actual debt on Sunshine City's statement, but if combined with Sunshine City's filing of more than half of the voting companies, we suspect that Sunshine City may hide real liabilities by selectively listing actual subsidiaries as joint ventures. Since subsidiaries can be “taken out” of the table in order to reduce leverage, profits are also “selective.”

Closing remarks

Since this year, there has been an accident with the Tahoe Group next door to Sunshine City. As a lesson from the past, one important reason Sunshine City introduced Taikang Insurance for its two shareholders is also to reduce leverage. However, we should also be wary of and face up to Sunshine City's own debt risk. Its actual debt size is not limited to the net debt ratio disclosed in financial reports.

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