Less than one year after its offshore affiliate paid $449 million to buy a stake in Seaworld from Blackstone, and just nine months after that same unit failed in its $4 billion bid to buy out US senior living operator Brookdale, listed developer Zhonghong Holdings has announced to the Shenzhen exchange that it has defaulted on more than RMB 1.1 billion ($174 million) in debts in the last month.
Zhonghong Holdings announced Monday that it now has a total of RMB 2.3 billion in overdue debts including this latest RMB 1.1 billion batch of overdue liabilities. The past due obligations amount to 23 percent of the listed developer’s net assets, according to a filing to the Shenzhen Stock Exchange. Zhonghong Holdings has a market capitalisation of RMB 12.5 billion.
“The company is currently negotiating with relevant creditors to properly resolve the issue, while working hard to raise capital to settle the debts,” the developer said in the filing. Shenzhen-listed Zhonghong Holdings’ total debt to equity ratio is at 190 percent, well above the industry average of 84 percent, according to Reuters.
Founder’s Stake Frozen For Unpaid Debts
The Beijing-based unit’s credit crisis comes just a few months after Zhonghong Holdings’ founder and controlling shareholder Wang Yonghong became a target of Chinese prosecutors due to defaults by various units of his Zhonghong Group.
Wang Yonghong’s 26.55 percent stake in Zhonghong Holdings was frozen for three years, effective from 19 December 2017, by the Third Intermediate People’s Court of Beijing after Zhonghong Zhuoye, a company wholly owned by Wang, failed to repay a loan of over RMB 200 million to TTCO Trust Corporation. Since then, courts in Beijing, Hefei, Guangzhou, Shenzhen and Shanghai have frozen the same stake for a three-year period, without specifying reasons for their moves. The latest court order was from 15 March, which froze Wang’s stake in Zhonghong Holdings until 15 March, 2021.
In early April, Beijing court froze RMB 806 million in bank deposits belonging to Zhonghong Holdings, its subsidiary Yumafang Property and Wang Yonghong after Yumafang Property failed to repay a RMB 200 million debt to Zhongshan Securities.
Established in 2001, Zhonghong Holdings engages in commercial, residential properties and cultural tourism projects in Beijing, Jinan, Haikou.
Financial Failure Follows Blackstone Buy
Wang’s default spree comes just short of 12 months after his Zhonghong Zhouye bought a 21 percent stake in Orlando-based theme park group SeaWorld Entertainment from Blackstone for $449 million in May last year — more than triple the price that the US investment giant had paid for the shares just seven years earlier.
Last June Zhonghong Zhuoye was said to be close to buying New York-listed Brookdale Senior Living for over $4 billion, according to a Financial Times account. However, the deal was aborted after Chinese regulators reportedly cut off the firm’s access to further credit.
Market Slowdown Puts Developers Under Pressure
Zhonghong’s announcement of its default was made the same day that Moody’s Investors Service issued a statement warning that some small and mid-sized mainland developers may have trouble paying their bills as China’s housing market continues its policy-induced slowdown.
“The tightening credit environment will accelerate market consolidation by driving smaller and weaker developers out of business or forcing them to sell their property projects to developers with strong liquidity,” Kaven Tsang, a Moody’s vice president and senior credit officer said in a statement.
The credit rating agency said that it expects the residential property market to continue to become more challenging during the coming year due to slowing home sales.
White Knight Stepped in With $2B Fund
While his controlling stake in Zhonghong Holdings has been suspended from trading, Wang Yonghong was in Hong Kong last month negotiating with Chinese investment firm China HKBridge Holdings regarding a plan for restructuring Zhonghong Zhuoye, a company wholly owned by Wang through which the tycoon holds his interest in the listed firm.
China HKBridge Holdings and Zhonghong Zhuoye are setting up a private equity fund to raise RMB 13 billion ($2.05 billion) “for the participation in the debt, asset and shareholding restructuring of Zhonghong (Zhuoye),” a statement from China HKBridge in February shows. The investment firm says it expects to set up and manage the private equity fund for a period of three years.