R&F sold its Vauxhall Square site in London at a $90 million loss in March
Guangzhou R&F Properties swung to a net loss of RMB 6.9 billion ($1 billion) in the first half of 2022 from the RMB 3.2 billion net profit it booked in the same period a year ago, adding to the challenges facing one of China’s most indebted developers.
In its interim results published late Wednesday, R&F blamed the worsening real estate market in mainland China for bringing its revenues down by 55 percent to RMB 17.78 billion in the first six months of this year.
“The first half of 2022 continued to be plagued by COVID lockdowns and economic uncertainty,” the disclosure read. “The unfavourable credit environment, coupled with challenging operating conditions has meant many developers’ liquidity remained tight as contracted sales also saw a significant decline.”
While R&F is not expecting a rebound over the near term, the property firm vowed to continue striving to generate cash by completing unfinished projects to prop up sales and expediting asset sales to help reduce liabilities as it grapples with some RMB 83 billion in debts coming due in the next 12 months.
Sales More Than Halved
R&F said revenues from its property development business – its main income generator – amounted to RMB 15.15 billion in the six months ending 30 June, which was down 58 percent from the RMB 35.95 billion it achieved a year earlier.
R&F chairman and co-founder Li Sze Lim
Part of this challenge was attributed to falling home prices in mainland China which brought the gross margin of the Guangzhou-based builder’s development business down to 18.9 percent from 22.3 percent previously.
R&F’s first half contracted sales of RMB 26.5 billion were less than half the RMB 65 billion it booked in the same period last year.
The company also saw its rental income from investment properties – which include office buildings, malls and theme parks – fall by nearly a quarter to RMB 409 million, while hotel revenues plunged 29 percent to RMB1.78 billion as China continues to implement draconian COVID restrictions.
In an effort to avert default, the company has conducted urgent asset sales that added to its losses.
R&F said it refinanced RMB 3.35 billion in domestic bonds and $4.9 billion worth of offshore debt in August, after its proposal to adjust terms on 10 outstanding foreign debt papers was approved by creditors in July giving the company extra time to pay off some of its obligations.
“In the second half of 2022, the group will continue to actively engage investors to further improve its liquidity profile,” it added.
When R&F published its long-overdue 2021 financial results early last month, the company revealed a net loss of RMB 16.4 billion after booking net income of RMB 9.1 billion in 2020.
Asset Fire Sale
To bolster its finances, R&F generated at least $500 million in liquidity during the period by selling assets, with most of that cash coming from its May sale of a half stake in the One Thames City redevelopment project in London for HK$2.66 billion (now $340 million).
In a rush to meet its cash needs, R&F exited the mixed-use project at a loss of HK$1.84 billion, just two months after it sold Vauxhall Square, another project in London’s Nine Elms area, at a heavily marked down price of £95.7 million (now $111 million).
As of June, the Chinese firm still has RMB 134.51 billion in outstanding borrowings with around RMB 83 billion of that amount due within the next 12 months.
Those short term liabilities stand against R&F’s cash on hand and restricted cash of RMB 15.32 billion as of June, with the company vowing to negotiate with its creditors to gain more time to resolve its liabilities.
“The group is actively in discussions with the existing lenders on the renewal of the group’s certain borrowings,” R&F assured investors in its interim results, adding that it expects to have sufficient working capital to fund operations and repay debts due within the next 18 months.
To boost cash flow, the company also vowed to ramp up pre-sales of its unfinished projects and sales of its completed properties, while exploring opportunities to divest stakes in some development entities.
Country Garden’s 96% Record Profit Drop
R&F’s announcement this week made it the latest mainland property builder to report disappointing first half earnings after Country Garden reported a record 96 percent drop in its profits during the period.
China’s largest developer on Tuesday said its core net profit attributable to owners plummeted to RMB 612 million in the six months ending 30 June, as revenues dipped by a third and its gross margin hit a record low of 10.6 percent, according to a Bloomberg report.
Meanwhile, the country’s third-largest developer China Vanke resisted the slide with a 10.6 percent year on year increase in its first half earnings after revenues from its development business spiked 24 percent to hit RMB 178.88 billion.
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