Glorious Property Misses Payments on $1.02B in Debt

Hong Kong-listed real estate developer Glorious Property could become the latest victim of China’s property crunch after the mainland builder disclosed last week that its revenues had dropped 85 percent this year and it had failed to make payments on loans.

According to a statement filed by Glorious with the Hong Kong stock exchange, the company missed deadlines for making RMB 3.02 billion ($475 million) in payments on RMB 6.5 billion ($1.02 billion) in debt so far this year, and it has yet to reach agreements with creditors on restructuring these obligations.

With the same statement revealing that Glorious lost nearly RMB 1 billion ($157 million) in the first six months of the year, credit agencies S&P and Moody’s have both since responded by red-flagging the developer’s credit. The two agencies raised doubts over the company’s ability to meet its obligations on $300 million in bonds that are due to mature on October 25th.

No Projects Mean No Sales for Glorious

Shanghai-based Glorious, which is majority owned by billionaire Zhang Zhirong, has been on the watch list for many in the industry as its sales slid this year. The release of the company’s first-half results confirmed the bad news.

During the first six months of 2015 Glorious’ revenues amounted to RMB 342.4 million, representing a decrease of 85.4 percent compared to the RMB 2.35 billion it brought in during the same period last year. Sales in terms of gross floor area were also down by 74.3 percent to just 43,647 square metres.

The poor performance for the developer could have much to do with the rising cost of land in China, and ongoing tight credit conditions for developers that lack strong backing.

In the first-half report, Glorious’ management explained that its poor sales figures were due to a lack of new projects coming onto the market. The company delivered no new projects to the market during the period from January to June, and said its revenues were a result of selling of remaining units from old projects.

Missed Payments Make Outlook Grimmer for Developer

As shocking as the sales figures were, the big news for the company’s bond holders is buried in the “Notes” section on page 11 of the report.

After explaining that the company lost RMB 996.6 million during the first half of the year, Glorious acknowledged for the first time that it had failed to meet debt payments during the first six months of year, and has missed additional obligations since then.

Glorious first-half loss, which was even larger than the RMB 221 million that it lost during the same period of 2014, made it unable to pay RMB 1.82 billion of principal and interest on RMB 5.4 billion debt during the first half of the year.

Since then, the company has failed to pay another RMB 1.2 billion on RMB 5.1 billion in debts, it said in the statement.

This failure was cause for concern with the ratings agencies. “Glorious’ liquidity profile has further deteriorated during 1H 2015,” Stephanie Lau, a Moody’s Assistant Vice President said in a statement. “The company continues to face a high risk of default as its ability to refinance the $300 million senior notes maturing on 25 October 2015 has further weakened,” she added.

Moody’s, which had already downgraded Glorious in April over its poor sales results, did not knock the company’s Caa3 rating down further, but pointed out that its outlook is negative. Competing credit agency S&P downgraded Glorious’ rating to CC from CCC-minus with a negative outlook after last week’s revelations.

Wrestling with a Cross-Default Event

In the statement Glorious’ management pointed out that its current struggles “indicate the existence of material uncertainties which may cast significant doubt about the Group’s ability to continue as a going concern.”

The company explained that its inability to renegotiate the terms of its debt obligations has put Glorious into a cross-default event, which means that RMB 7.4 billion in debt must now be re-classified as current liabilities. As of June 30, the company’s total short term debts amounted to RMB 21.8 billion.

To try to resolve its debt crisis, the company says it has been “actively negotiating with a number of commercial banks for renewal and extension of bank loans and credit facilities.”

Glorious also said that it has reclassified RMB 2.2 billion in commercial properties as non-current assets classified as held for sale, effectively putting some of its existing assets on the market to raise cash.

However, S&P stated that, so far, Glorious has no concrete plan for meeting its outstanding obligations to creditors, and time is running out for it to raise the funds necessary for meeting its bond payments in late October.