China’s real estate troubles have hit one of the country’s largest property service providers, with a brokerage and data provider backed by Alibaba announcing on Thursday that it is unlikely to be able to pay a $298.2 million bond due on 18 April.
“The Company continues to explore ways to secure the requisite funds to repay the 2022 Notes on the maturity date,” E-House (China) Enterprise chairman Zhou Xin said in an announcement to the Hong Kong stock exchange. “However, based on information available to the Company to date, the Company believes it is unlikely to be able to secure the requisite funds on or before the maturity date.”
With contracted sales attributable to shareholders at China’s top 100 developers having declined by 6 percent last year, as seen in data published by E-House’s CRIC information unit, the property agency lost RMB 9.37 billion ($1.47 billion) during 2021, according to its unaudited financial results. E-House was one of a large group of Chinese real estate firms which failed to publish their audited financials by the 31 March deadline.
International ratings agency S&P Global in February had downgraded E-House’s credit rating to CCC, citing rising repayment pressure amid depleting liquidity. Mainland credit rating provider Lianhe Global last month capped a series of downgrades in E-House’s credit by withdrawing its long-term issue and issuance ratings, citing commercial reasons without providing additional detail.
In its announcement today, E-House noted that during last month it had offered holders of its bonds due next week, as well as investors in another $300 million in notes due next year, an opportunity to swap those instruments for new notes maturing in 2025.
With some creditors having balked at this offer, E-House’s chairman says that his firm is working on restructuring its obligations as it prepares for what appears to be an imminent default.
“The Company is commencing and intends to pursue, in a timely manner, a transparent dialogue with the holders of the Old Notes and the Company’s other financial creditors, with a view to identifying and implementing a consensual resolution that appropriately takes into consideration the positions of all stakeholders,” Zhou said.
In announcing its unaudited results, E-House said that after recording a RMB 439 million profit in 2020, the policy-induced slowdown in China’s property market last year had undermined its business.
“As a number of policies, including those regarding land auctions and regulatory funds, were implemented, the real estate industry has been under severe conditions, with transactions continued to decrease and several property developers facing credit crisis,” Zhou said. “As the primary downstream service platform of China’s real estate industry, the Group was also affected by the chain reaction of the industry.”
Revenue derived from real estate agency services for E-House declined by 38.3 percent in 2021 to just RMB 2.5 billion as home sales dropped.
Alibaba Goes Cool
An additional cause of financial stress for E-House in 2021 was the termination of an agreement with Alibaba for the e-commerce giant to boost its current 8.32 percent to 13.26 percent, under terms agreed upon in 2020.
While Alibaba and E-House moved forward with a joint venture to rejuvenate the Leju online real estate platform, Alibaba last year declined to exercise its option to pick up a larger slice of the agency’s equity.
In addition to its offshore bonds, E-House needs to pay back a HK$1 billion convertible note owed to Alibaba with that instrument maturing next year.