Less than a year after the introduction of the three red lines, it has brought tremendous impact and changes to the real estate industry, and the era of debt-driven development has become a thing of the past. How to adjust and optimize the debt structure in the future has also become a major focus in the current environment. Since the introduction of the three red lines, which real estate enterprises have adjusted their debt structure more quickly? How much has the financing cost and debt duration of real estate enterprises improved?

01 short-term interest-bearing liabilities fell for the first time and the long-term and short-term debt ratio rose to 2.15

The growth rate of total interest-bearing liabilities of 99 typical listed housing enterprises has shown a continuous downward trend in recent years, and it has fallen off a cliff after the introduction of the three red lines. The total interest-bearing debt of 99 housing enterprises was 7.7919 trillion yuan at the end of 2020, an increase of only 5 per cent compared with 2019 and a decrease of 1 per cent compared with the end of the first half of 2020. Among them, 28 housing enterprises showed a year-on-year decline in their total interest-bearing liabilities, while 32 had a year-on-year growth rate of no more than 15%, accounting for about 61% (compared with 54% in 2019). It can be seen that more and more real estate enterprises regard controlling the scale of debt as the main goal at present.

At the same time, many real estate enterprises actively adjust their debt structure by borrowing the new to return the old. By the end of 2020, the long-term and short-term debt Prida of 99 housing enterprises was 2.15, up from 1.93 in 2019 and 1.87 in mid-2020, with short-term interest liabilities of 2.4722 trillion yuan, down 2% from 2019, the first decline in years. Long-term interest liabilities increased by 9% to 5.3197 trillion yuan compared with 2019.

Housing enterprises adjust their debt structure by borrowing the new and returning the old. On the one hand, in the short term, it can help to meet the red line indicators such as cash-to-debt ratio and meet the requirements of policy supervision. On the other hand, making more use of long-term funds can also make the future decisions of enterprises more leisurely.

02 more than half of the enterprises have outstanding performance in optimizing their debt structure in 2020

From the perspective of specific housing enterprises, among the 99 key housing enterprises in 2020, the long-term and short-term debt ratio of 52 housing enterprises has improved to varying degrees, among which financial innovation, Kaisa industry, Rongsheng and other housing enterprises have not only controlled the growth of total interest-bearing liabilities, but also significantly optimized the debt structure.

Take Kaisa as an example, at the end of 2020, Kaisa's total interest-bearing liabilities were 121.471 billion yuan, up 4% from the same period last year, of which short-term interest-bearing liabilities were 23.069 billion yuan, down 28% from the same period last year; long-term interest-bearing liabilities were 98.402 billion yuan, up 15% from the same period last year; and the long-term and short-term debt ratio rose sharply to 4.27 from 2.67 yuan in 2019. This is mainly due to Kaisa's cumulative issuance of 3.4 billion US dollars of overseas priority bills during the period, and the issuance period is generally long, of which 5Y accounts for 44.1% and Ji accounts for 23.5% (including 3N-year perpetual bonds), thus optimizing the debt structure.

03 the wave of redemption continues in 2021. Some real estate enterprises step up efforts to reduce their debts or adjust their structures.

In the first half of 2021, some housing enterprises continued to increase bond redemption and borrow new to repay the old. According to incomplete statistics, China Evergrande, country Garden, Olympic Park, R & F and Zhengrong all redeemed larger bonds, of which Evergrande repaid HK $16.1 billion convertible bonds due in 2023 with HK $18.352 billion of its own funds in January 2021. At the strategic partner exchange meeting on June 3, Evergrande even said that the corporate interest-bearing debt is expected to drop to less than 600 billion by June 30, 2021.

Chinese Olympic GardenIn the first half of the year, all three overseas priority bills were redeemed, with a redemption scale of more than 7 billion yuan. At the same time, the Orchard has also issued a number of long-term bonds, such as the six-year $350 million priority note with an interest rate of 5.88 per cent in February 2021, which optimizes the corporate debt structure for the longest term of the Olympian dollar bond.

In addition, Zhengrong has also been actively optimizing the debt structure by replacing long-term debt with short-term debt since the first half of the year. In the first half of 2021, three senior notes were redeemed, first in March with an early redemption of $310 million at an interest rate of 9.15% in 2022, followed by a redemption of $420 million at an interest rate of 8.65% in 2023 in May and $1 billion at an interest rate of 7.4% in 2021.

Judging from the situation of Zhengrong's new bond issuance in 2021, the interest rates on the four recently issued priority bills are between 5.98% and 7.10%, all of which are far lower than the redemption bond interest rate. Zhengrong's financing-weighted interest rate in 2020 is 6.5%, which has been reduced by 1pct compared with 2019, and costs are expected to continue to fall under the measure of swapping new debt for old debt. In addition, in terms of the issuance period, two of the newly issued priority bills are five-year, accounting for 56% of the total amount, and it is expected that the long-term and short-term debt ratio of enterprises will also be further optimized in the future.

On the whole, it is more difficult to obtain long-term debt than short-term debt. Generally speaking, it is necessary to make a detailed credit evaluation or even asset mortgage for the borrowing enterprises. In the context of the current tightening of financing, not all housing companies have easy access to lower-cost, longer-term long-term debt. The housing enterprises that can trade in the new for the old are still in the minority. For those housing enterprises whose debt structure is not ideal, it is recommended to start with operational efficiency, improve product power, constantly control debt and cost, and refine operation, so as to open up the positive cycle of business and capital and grasp greater competitive advantage.

This article comes from the official account of Wechat, "Carey Real Estate Research", financial editor of Zhitong: Yujing.