China’s Agile Gets Mezzanine Loan From Hong Kong Tycoons at 20%

China’s 28th-largest developer is borrowing money at credit card interest rates as it struggles with declining sales and $1.16 billion in bond obligations due in the second half of this year.

Guangzhou-based Agile Group informed the Hong Kong exchange late Friday that it has obtained a two-year mezzanine loan from a pair two Hong Kong billionaires and and an unnamed third party, providing it with up to HK$894 million ($114 million) in cash at an annual interest rate of 20 percent.

“The mezzanine loan will be applied towards funding the general working capital of the group including the borrower and refinancing existing indebtedness of the group including the borrower,” Agile Group said. It added that the loan can provide “medium-term funds to the group and facilitate the Group to meet its working capital requirements for the development of its property projects.”

The loan follows a series of asset sales by Agile earlier this year, which have failed to stanch the developer’s liquidity issues as its contracted sales from the first five months of 2022 fell 49 percent year-on-year, and investors have begun discounting its longer-dated debt.

Billionaires Help Out

The debt-wracked developer said that in the event of a continuous default, the loan can be converted into 100 percent ownership in Full Land Development Limited, the company’s primary Hong Kong-based unit, which owns residential projects on Mount Parker Road and King’s Road in the city’s Quarry Bay area.

The option to convert the debt into ownership in Full Land is worth up to HK$2.1 billion, representing the total amount of principal and interest of the two loans, Agile said. The company would record a loss of HK$1.4 billion due to lost rights if Full Land is ever transferred to the mezzanine lender, it said.

The lender, Allied Global Group Limited, is an investment holding company owned approximately one-third each by Thing On Enterprise Ltd chairman Richard Wong Chung Tak, Peterson Group chairman Yeung Sai Hong, and an independent third party, according to Agile’s statement.

Wong is the founder and chairman of Hong Kong property investment firm Thing On Enterprise Ltd and had previously served as chairman of Shenzhen High-Tech Holdings, a Hong Kong-listed Thing On unit acquired by mainland developer Landsea Green Properties in a reverse merger in 2013. Wong still maintains a 9.5 percent stake in Landsea Green.

Yeung Sai Hong, also known as Franco Yeung, is a second-generation tycoon who controls Peterson Group – a family-run developer established in Hong Kong for over 60 years. The company’s more than $4 billion in assets include the LKF Tower in the Lan Kwai Fong party district, and it developed the 39 Conduit Road luxury project in the Mid-Levels. In October of last year, Peterson Group acquired 341-343 Tai Hang Road in Happy Valley for HK$1.24 billion.

The main assets of Agile’s Hong Kong unit include two residential land parcels in the city which could yield approximately 600 units, according to the Agile statement.

Among the two projects is 2–16 Mount Parker Road in Quarry Bay,  a 24,210 square foot (2,249 square metre) site which it has assembled through a set of transactions, including paying $452 million to pick up a 12,730 square foot plot in October 2020. 

The other project is 992–998 King’s Road in Quarry Bay, a 10,000 square foot site which the builder bought in December 2017 for HK$400 million.

Asset Sales Continue

Agile’s took out its latest loan despite having sold a 26.7 percent stake in a Guangzhou property joint venture for RMB 1.84 billion ($275 million) to a unit of state-backed China Overseas Land & Investment (COLI) in January, as it scrambled to avoid defaulting. In the same month, Agile disposed of stakes in seven projects in Jiangsu, Zhejiang, Hebei and Shandong provinces to raise nearly RMB 1.8 billion in total.

Prior to those asset sales, in the second half of 2021 Agile Group had sold 14 properties, including five hotels, two shopping malls, three sales offices, three residential commercial facilities and one apartment for RMB 2.8 billion, according to a filing with the Hong Kong exchange in January.

An intercreditor agreement also signed on Friday said an existing credit facility from HSBC and the Bank of East Asia Limited (BEA) should have priority over the mezzanine loan and that Allied Global Group shall acquire all rights and obligations for the two banks’ loan if Agile defaults.

In April, HSBC and BEA had made a two-year loan of up to HK$1.04 billion to Agile at an annual interest rate of HIBOR plus 1.4 percent. Last Friday, the two banks agreed to extend the loan for another year by reducing the amount to HK$825 million and increasing the interest rate by 1.5 percentage points.

Liquidity Questioned

Agile has turned to private credit options as public markets have grown increasingly wary of the developer’s debt.

Moody’s last month downgraded Agile Group’s corporate family rating by one notch in the high credit risk category to B3, citing declining liquidity and sales, sizable refinancing needs, and constrained access to funding.

Its bonds due in August now trade around 80 cents on the dollar but the firm’s other offshore notes range from 25 cents to 37 cents, highlighting longer-term concerns.

Agile has $1.16 billion of bond obligations due through year-end, including $600 million of principal on the August notes and a 1.5 billion yuan ($225 million) security due in July, according to Bloomberg. The company’s shares have lost more than 69 percent of their value over the last year, and now trade at a 13-year low.

After missing the 30 March deadline for publishing it 2021 results, Agile Group finally released its audited financials on 10 May. However, offshore financiers’ increased skepticism regarding the Chinese property sector continues to constrain the company’s access to funding, Moody’s said.

The rating agency projects Agile’s gross contracted sales will decrease to from RMB 95 billion to RMB 100 billion this year from RMB 139 billion in 2021, and expects further pressure on its profit margins.