Chinese enterprise CIFI Holdings (00884.HK) recently announced that it had suspended all foreign debt payments due to deteriorating cash flow but would repay domestic debts to maintain domestic financing. This may indicate that Chinese firms are now cutting off their international capital ties amid tightened policies and turning to domestic investment to survive.
CIFI Holdings stated on Nov. 1 that it was suspending principal and interest payments to all overseas creditors, citing weakening sales and stagnant cash flow since September. And despite its “largest efforts, it failed to generate sufficient cash to meet current and future obligations.”
As of Nov. 1, CIFI Holding’s foreign debt—including bank loans, senior notes, and convertible bonds—totaled approximately $6.85 billion, with the total outstanding principal, interest, and related surcharges at roughly $414 million.
Despite external debt defaults, CIFI Holdings said it would settle its domestic debts to guarantee its operation and maintain its domestic financing.
Chu Hanshi, a UK-based financial expert, told The Epoch Times on Nov. 4 that CIFI Holdings has encountered operation headwinds and it can’t take on new debt to pay off old debt, either at home or abroad, so it has completely given up on its foreign debt.
However, CIFI Holdings is selective in its debt repayment so that it can “support its domestic business as a priority, as it says that the domestic debts would be repaid on schedule,” Chu said.
This selective debt repayment behavior may be related to the tightening policy that has prevented private companies from seeking foreign investment in the past few years, such as the ride-hailing tech company Didi Chuxing and after-school tutoring programs that have exited the U.S. stock market. This has left private companies dependent only on domestic capital to run their business.
CIFI Holdings’ 2022 interim financial report released on Sept. 29 showed that sales in the first half of the year fell 53.6 percent, net profit dropped 64.5 percent, and net profit in favor of shareholders plunged 79.7 percent.
CIFI Holdings ranked 14th with sales of 113.38 billion yuan (about $15.9 billion) and 13th with property sales of 7.81 million square meters on the January-October 2022 China Real Estate Enterprise Sales Results Ranking, released by China Index Academy on Oct. 31.
As one of China’s prominent real estate companies, CIFI Holdings, which is headquartered in Shanghai, received credit enhancement from China Bond Insurance Corporation in August and is participating in the second round of domestic bond issuance projects, according to a report by state-run financial media Securities Daily on Nov. 3.
An elderly woman looks at the price tags of houses at a local real estate office in downtown Shanghai on Feb. 12, 2018. Johannes Eisele/AFP via Getty Images
Property Firms Struggle to Survive
The first 10 months of the year saw the top 100 Chinese real estate companies totaling corporate sales of 6,095.46 billion yuan (about $850 million), down 43.4 percent year-over-year, while total sales in October fell 26.5 percent year-over-year, according to a report by China Index Academy.
As of Nov. 1, the report said that more than 300 provincial and municipal governments in China had adjusted their policies more than 900 times to stimulate the real estate market, with an average of 90 policy adjustments per month.
Despite various stimulus incentives, however, the so-called “Golden September and Silver October”—the two months that are known as the traditional peak season for housing sales in China—did not arrive as expected for the real estate market.
“CIFI Holdings’ performance this year shows that it has been fairly cautious in acquiring land and has already sold a number of projects in the third quarter of this year to raise funds,” Chou said.
This may include the following moves. On July 11, CIFI Holdings sold some of its Shanghai units for 187 million yuan (about $25 million). On Aug. 31, the company raised roughly HK$628 million (about $80 million) through discounted share allotments. On Sept. 6, it declared to sell part of its Hong Kong assets to a joint venture of Wang On and Dutch fund manager APG for HK$1.34 billion ($170 million). On Sept. 9, CIFI Holdings transferred part of its interest in its Nanjing leasing project, returning 117 million yuan (approximately $16 million) in the capital.
According to a Nov. 1 report by Bloomberg, in the fourth quarter of 2022, the total debt maturities of Chinese property developers—including onshore and offshore bonds and loans, and domestic trust loans—reached $53.7 billion; in 2023, total debt maturities could be $72.3 billion in the first quarter and $238 billion for the whole year.
Although total debt maturities in 2023 could be 25 percent lower than in 2022, China’s real estate developers still feel the pressure of heavy debt servicing due to the market downturn and declining sales, Chu said.
Kathleen Li has contributed to The Epoch Times since 2009 and focuses on China-related topics. She is an engineer, chartered in civil and structural engineering in Australia.
