Troubled China real estate developer Agile Properties announced on Thursday that a previously planned rights offer is back on the table. The plan to raise HK$1.65 billion ($213 million) seems more challenging than ever, however, as the Hong Kong-listed property firm revealed that same day that another of its directors appears to be have been taken into custody by authorities in Yunnan province.
According to an account in Bloomberg, Agile Vice President and Executive Director, Huang Fengchao on October 11th asked an associate to assist with requests from the Communist Party’s top anti-corruption agency, and has not been heard from since. Huang held responsibility for securing land and developing projects in Hainan and Yunnan provinces for the Guangzhou-based company.
Huang’s apparent detention follows less than a week after Agile announced that its chairman and president, Chen Zhuolin, had been detained by prosecutors in Kunming, the capital of Yunnan.
While Agile’s announcement of the rights issue appears to answer some questions about how the developer plans to meet its considerable financial liabilities, the company is likely to need additional measures, including the sale of existing assets, if it is to meet its obligations to creditors over the next year.
Launching a Scaled Back Rights Issue
Agile’s new plan for the $213 million offering follows the cancellation last Friday of a planned $360 million rights issue in the wake of Chen Zhuolin’s detention. The company has loan obligations of $475 to repay in December this year, and Agile’s stock has lost more than 50 percent of its value since the start of this year.
Earlier this week the family of Chen Zhuolin had offered $200 million in funds to float the troubled company. This cash is now said to be ear-marked to underwrite the rights issue. Chen’s wife and younger brother were appointed acting co-chairpersons and acting co-presidents last week following Chen’s detention.
In a statement to the Hong Kong stock exchange, Agile said that the proceeds of the rights issue would be used to refinance part of its loan obligations that come due in December.
Agile Specialised in Securing Sites in Resort Locations
Huang’s detention seems to signify that Agile’s ability to develop lucrative resort projects in less-developed provinces – which made the company into a star – may also be its undoing.
Agile separated itself from the hundreds of other real estate developers in China through its successful development of the RMB 20 billion Clearwater Bay project in Hainan during the middle of the last decade.
The Hainan project, which Agile developed in a joint venture with Morgan Stanley, allowed it to build a number of high end resorts, including the JW Marriott Clearwater Bay Resort & Spa, Jumeirah Clearwater Bay Resort, Outrigger Clearwater Bay Resort, Hilton Hainan Clearwater Bay Resort and Raffles Sanya Clearwater Bay.
As a director of Agile, Huang Fengchao was deeply involved in those Hainan projects, and until recently had been attempting to develop similar tourist resorts in Yunnan. The current investigation of Chen, Huang and Agile in Kunming is rumoured to centre on corruption in its projects in Yunnan.
Will Agile Start Selling Off Assets?
While the planned rights issue may help to address Agile’s obligations for the month of December, the developer has another $1.2 billion in debt to repay or refinance during the first half of 2015.
The company’s ability to pay down its debts through further borrowing or sales income has also been called into question. In recent weeks Standard & Poor’s has put Agile on a negative credit watch, and Moody’s downgraded Agile’s corporate credit rating to Ba3 from Ba2, citing higher refinancing risks.
On the sales side, JP Morgan this week scaled back its outlook for Agile’s 2014 sales by 11 percent from RMB 42.5 billion to RMB 38.1 billion, citing skepticism over the company’s strategy.
With other financing options limited Agile may be forced down the path recently taken by fellow Hong Kong-listed developer Shui On, and begin selling off assets.
Agile has a large portfolio of properties that it might sell off, including its hotels in Hainan and commercial properties in Zhongshan, Guangzhou, Foshan, Hainan, and Shanghai. In Shanghai, the company owns Agile International Plaza, which includes the Marriott City Centre Hotel, and occupies nearly an entire city block near People’s Square.
With debt obligations to pay and other financing avenues largely closed off, Agile and its catalog of commercial assets may present just the opportunity that the many private equity firms and investment funds circling the China market have been looking for.