Tahoe Sells Stake in Hangzhou Project in Scramble to Repay RMB 3B Bond This Week

Facing a 28 March deadline to repay principal and interest on a RMB 3 billion ($450 million) bond, Tahoe Group issued a statement to the Shenzhen stock exchange today reassuring investors that the financially troubled mainland developer would be able to repay its debt.

The announcement by the Fuzhou-based company comes just one business day after it had unveiled a sale of a 51 percent stake in a Hangzhou commercial project to competitor Shimao Property for approximately RMB 378 million.

Shenzhen-listed Tahoe (SZ:000732), has been criticised by analysts for its slow rate of cash collection at the same time that it faces debts equal to more than four times its equity and RMB 10.5 billion in bonds coming due or subject to early redemption this year.

Troubled Developer Says Everything is Fine

In its announcement to the exchange today, Tahoe told investors that there was no risk of the company defaulting on its March 28^th obligation to pay the RMB 3 billion in principal and associated RMB 219 million in interest due on its “16 Taihe 01” domestic bond, which is due to reach maturity the same day.

Tahoe said in its statement that the company has set aside funds specified for the interest payment.

According to local media reports the company is facing RMB 59 billion in debt obligations this year, and as of the end of September 2018 had RMB 17.4 billion in available cash, according to Moody’s Investors Service.

Should Tahoe reach its financial milestone this week, the company will face another debt hurdle on May 25^th when it must pay RMB 288 million in interest to holders of two additional sets of local bonds. In August, another RMB 1.6 billion in debts are set to come due.

Tahoe Sells Projects in Zhejiang, Fujian, Pawns Beijing Property

The company’s ability to satisfy its creditors received a boost from an agreement announced on March 23  to sell 51 percent of a subsidiary that holds the rights to a 310,000 square metre (3.3 million square foot) commercial project in Hangzhou’s Xihu district.

Following the transaction, Shimao Property, whose chairman Xu Rongmao hails from Tahoe’s home province of Fujian, will own the majority of the project, which the smaller developer had purchased the land for in November 2016 at a cost of RMB 1.4 billion.

Tahoe was ranked as China’s 20^th largest developer last year by contracted sales, according to data from E-House’s CRIC division, with buyers signing up for just over RMB 130 billion of the company’s new properties, while Shimao placed 11^th in the ranking with RMB 176 billion in new contracts.

A report last week in the South China Morning Post cited sources familiar with the matter as indicating that Tahoe was attempting to sell off 12 projects which it had paid no less than RMB 40 billion to acquire over the past two years.

These reported attempts at asset sales come after the developer sold off a set of three Fujian projects in December for RMB 635 million. Also in December, Tahoe transferred the rights to the income from sales in the second phase of a luxury residential project in Beijing to a pair of trust companies in return for RMB 3.5 billion in short term financing.

In March, the company was offering 30 percent discounts at its Noble Mansion project in Beijing’s Chaoyang district, according to local media accounts, while it was offering 37 percent discounts on sales of units in its Cathay Courtyard project, and steep cuts in prices in its Jinfu Courtyard project in the capital.

Financial Challenges Linger From 2018

Tahoe’s asset sales in December and in early 2019 follow a series of financial challenges earlier last year.

In July last year the company denied reports of mass layoffs in its Beijing and Wuhan offices, along with other centres, after long-time executive Shen Linan left that same month.

In November, Moody’s Investors Services downgraded Tahoe’s corporate credit rating from B2 to B3. In explaining the downgrade Wenhan Chen, an analyst with the credit ratings agency indicated that, “The rating downgrade reflects Tahoe’s weak financial management and its heightened debt-refinancing risk over the next 12-18 months because of weaker-than-expected cash collections from property sales and high levels of maturing debt over the next 12-18 months.”

Moody’s also noted that Tahoe has onshore bonds of RMB 10.5 billion puttable by the end of 2019, as well as outstanding land premium payments due to local governments.