Logan Selling 40% of Expressway Project to New World for $290M

With RMB 35.9 billion in debts coming due this year, financially troubled developer Logan Group is selling 40 percent of an expressway project in southwestern China to Hong Kong’s New World Group for RMB 1.9 billion ($290 million).

In a joint statement to the Hong Kong stock exchange last week, New World Development and its New World Infrastructure (NWS) unit said the 198-kilometre Guigang-Wuzhou Expressway, located in Guangxi Zhuang Autonomous Region, is “a quality asset” with a 23-year remaining concession period, and the region has strong growth potential.

Shenzhen-based Logan saw its credit downgraded by all three major global credit agencies during March, with Fitch Ratings noting the company’s poor liquidity and failure to disclose off-balance-sheet private debt arrangements as it assigned a CCC rating to the firm’s long-term foreign and local currency debt on 11 March.

The expressway stake sale by Logan’s infrastructure unit came nearly two months after Logan Group agreed to sell a residential project in Shantou, a city in southern China’s Guangdong province to China Overseas Grand Oceans Group Ltd for RMB 1 billion to ease liquidity.

Debt Crunch

Despite these financial manoeuvres, on 29 April Logan Group announced the second rescheduling of the release of its financial results within 31 days. After missing the 31 March deadline for submitting its financial results, it now says that it plans to publish its audited reports by 30 May after earlier setting a 30 April target.

In unaudited results published in March, the company said it had profit attributable to shareholders of RMB 10.4 billion in 2021 – down from RMB 13.4 billion a year earlier.

Despite those earnings, over the last two months, Logan Group has extended the maturities of three onshore bonds by 15 to 18 months with outstanding balances totaling about RMB 5 billion, according to a report by The Paper.

Last month, Logan executives told investors that the company planned to put on sale RMB 6 billion in assets to ease liquidity, and that the company had not raised any money from the public capital markets since the fourth quarter, according to another report by The Paper.

Further adding to Logan’s distress, the firm’s contracted sales attributable to shareholders fell to RMB 17.12 billion during the first quarter, which represents a decrease of around 60 percent from the same period one year earlier.

In explaining its downbeat view on Logan’s finances, Moody’s pointed to the a widening gap between the company’s income and debt obligations.

“The rating downgrade reflects the company’s heightened refinancing and default risks because of its weakened contracted sales, deteriorated funding access and sizable debt maturities over the next 12 months,” said Cedric Lai, a Moody’s vice president and senior analyst.

Years of aggressive expansion caused Logan to accumulate interest-bearing debt of RMB 93.9 billion as of the end of last year, of which RMB 35.9 billion was due within a year, according to a report by E-House’s China Real Estate Information Corporation (CRIC).

Logan Group managed to record RMB 78.3 billion in revenue last year with a 10.2 percent growth, but its net profit declined by 22.4 percent due to rising costs, according to the company’s unaudited results.

New Opportunities in China

Besides a 40 percent stake in the expressway, New World will also be gaining the related creditor’s rights and dividends receivable from the asset as part of the deal, the joint statement said.

The expressway – which rebounded to a net profit of RMB 171.2 million last year – will bring an immediate contribution to the cash flow and financial performance of NWS upon completion of the acquisitions, said the statement. It will be accounted for as a joint venture of the two companies.

With investment coffers of HK$100 billion ($12.8 billion), New World is setting aside HK$20 billion for real property acquisitions, according to Nikkei Asia. The company’s interim underlying profit rose 4.8 per cent year-on-year for the six months to December to HK$3.9 billion and its revenue remained flat at HK$35.6 billion.

New World’s mainland China subsidiary announced last December it had secured three urban renewal projects in the Guangdong-Hong Kong-Macau Greater Bay Area, including a food factory in Shenzhen that will be redeveloped into a residential building, a joint-venture industrial park project in Shenzhen, and a hospital and residence hall reconstruction project in Guangzhou.

The project in Guangzhou has a total investment of RMB 410 million, in which New World owns 55 percent, according to a report by Guandian last November.

Also last month, New World China announced a partnership with China Merchants Shekou Industrial Zone Holdings Co Ltd under which the two will collaborate on various fronts including property development, urban renewal, and equity and asset acquisitions.