The owners of real estate developer Agile Property announced this week that they are offering their company $200 million in loans in a bid to refinance the struggling firm after scuttling a planned rights issue.
Guangzhou-based Agile has seen its stock plummet as much as 31 percent this week after it revealed that its chairman and president, Chen Zhuolin, was taken into custody by authorities last month. The rights issue, which had aimed to raise $360 million, was intended to help pay down Agile’s $980 million in debt obligations coming due this quarter. The developer has another $1.2 billion in debt to repay during the first half of 2015.
The proposed shareholder loans by the family of Chen Zhuolin were revealed during a Monday call with analysts held by Sam Cheung, Agile’s chief financial officer. During the talk with the finance firms, Cheung said that Agile is also negotiating with HSBC Holdings, Standard Chartered, Hang Seng Bank and other banks about rolling over the developer’s loans.
Analysts Skeptical About Agile’s Finances
While analysts that Mingtiandi spoke with see a debt rollover as likely, the refinancing will not be cheap for Agile. Following Chen’s arrest and the cancellation of the rights issue, Standard & Poor’s put Agile on a negative credit watch, and Moody’s downgraded Agile’s corporate credit rating to Ba3 from Ba2, citing higher refinancing risks.
Following the analyst call, JP Morgan analyst Ryan Li sent a note to clients calling into question Agile’s plan to revise its sales through discounting and other strategies, saying that “…we are now more skeptical on Agile’s ability to sustain its flexible pricing strategy, and hence we revised down our 2014 contracted sales estimates earlier today to Rmb38.1 bn (from Rmb42.5 bn).”
The bank also said that it was downgrading its advice on Agile’s stock to Underweight from Neutral, with a HK$4.0 per share price target for June 2015. Li said that the bank expects equityholders to lose confidence in the company until its near-term refinancing risk is resolved.
Refinancing Plan on the Way
The proposed shareholder bailout should be manageable for Agile’s owners, according to public estimates of their assets. Chen’s family fortune was listed as totalling $3.2 billion in 2014 according to the Hurun Rich List, ranking them 51st among China’s wealthiest families. Following Chen’s detention his wife and younger brother were designated as co-acting chairpersons and co-acting presidents by the board.
In the call with analysts Agile said that it would make public a refinancing plan within the week.
Markets have so far been unmoved by the promise, however, with its current stock price of HK$4.10 per share being nearly 30 percent lower than the HK$5.83 per share that the stock was trading at before Chen Zhuolin ran into trouble, and the company has lost more than 50 percent of its share value this year.
Chen is the second chairman of a Hong Kong-listed property developer to be detained in a corruption investigation this year after Wong Choihing, chairman of Hong Kong-listed logistics developer Hydoo International Holding was detained sometime in July. Kong Jian Min, chairman of Guangzhou’s KWG Property Holdings has also been accused of graft and corruption related to land sales which benefitted his Hong Kong-listed company.
Some reports in China’s local media have tied Agile to fallen former Politburo member Zhou Yongkang, although the company has dismissed these allegations as unfounded.
The dependence of China’s developers on gaining cheap access to land via government auctions has left the industry rife with opportunities for under the table dealings, despite attempts by Beijing to increase transparency in the land market.