中信证券:地产行业信用、交付和销售的恶性循环已经开始被切断 企业的资产结构改善正在发生

CITIC Securities: The vicious cycle of credit, delivery and sales in the real estate industry has begun to be cut off, and improvements in the asset structure of enterprises are taking place

Zhitong Finance ·  11/16/2023 14:20

The Zhitong Finance app learned that CITIC Securities released a research report saying that the vicious cycle of credit, delivery, and sales in the real estate industry has begun to be broken, and improvements in the asset structure of enterprises are taking place. In this special period, companies may take various measures to repair credit. Bond repurchases are a double-edged sword. Improper use may distort the issuer's balance sheet, forcibly accelerate deleveraging, and amplify fluctuations in the credit cycle. The most fundamental means is to strengthen one's own qualifications and return cash to boost market confidence. Returning cash is not tantamount to blindly throwing goods; it is necessary to formulate detailed, targeted, and more balanced production and operation plans. In addition to this, external support from shareholders and the government is also of great significance to the credit repair of housing enterprises.

▍ The main views of CITIC Securities are as follows:

The industry is beginning to cross the credit divide.

The industry's vicious cycle has begun to be stopped. Most consumers believe in the strength of guaranteed delivery, and even insurance companies still maintain a certain amount of sales payback. The list of uninsured companies has changed a lot compared to a year ago. The historical debt cost of such companies is low, while on the asset side, after a period of making up new products and negotiating used goods planning conditions, the structure has also improved. State-owned capital expressed credit support for mixed ownership enterprises represented by Vanke.

The industry is crossing a credit watershed. Of course, the final resolution of the credit issue depends on market recovery, especially the stabilization of housing prices. This report mainly studies what decisions enterprises make in the credit repair process that are most beneficial to investors.

There are pros and cons to choosing to buy back bonds during special periods.

Repurchase usually means that the issuer buys back the issued bonds before payment is made. It is a way for enterprises to actively manage debt based on market environment research and judgment. In a period where the financing environment is smooth and market interest rates are low, bond repurchases can indeed reduce financing costs and increase market confidence; however, in a period where the financing environment is limited and market risk appetite is declining, the recovery in valuation and sentiment driven by repurchase behavior will not actually improve the issuer's credit qualifications.

Well, for some issuers, repurchasing bonds may distort the issuer's balance sheet and forcibly accelerate deleveraging, thereby amplifying fluctuations in the credit cycle. Judging from historical experience, there is no shortage of cases where the company's liquidity declined after the repurchase. Against the backdrop of limited financing channels and weakening of fund-raising cash flow, in the end, rollover and default still occurred.

Only by boosting one's own qualifications can one boost market confidence.

For enterprises, the opportunity cost of repurchasing bonds is too high: first, using corporate capital repurchases to boost confidence in the overseas bond market where participation continues to decline. This type of debt management method is relatively inexpensive; second, the current US dollar exchange rate is high, and using capital exchange to relatively “expensive” dollars to buy back US dollar bonds maturing after an average of 2.5 years is used to buy back US dollar bonds that mature after an average of 2.5 years. Compared with maturing payments, current repurchases can easily generate large exchange losses.

At the end of 2023, the real credit risk in the real estate industry is gradually being cleared. Although public opinion may still be disturbed in the short term, the real estate bond market has entered the “leftovers are king” stage. The company's own liquidity and credit qualifications are the ultimate guarantee of market confidence. Measures such as returning cash and maintaining a good refinancing environment are important measures to resolve public opinion.

The key to returning cash is not to dismiss goods blindly, but to formulate and execute a balanced production and operation plan.

The so-called balanced production and operation plan means that land acquisition must not only maintain a reasonable future price structure as much as possible, but also avoid taking up large amounts of land in the current period; development and construction must not only maintain the basic confidence of suppliers and keep the value of goods from falling drastically, but also avoid blindly starting construction and taking up capital, and retaining the possibility of some projects and local negotiations to optimize project planning conditions; management expenses must not only reduce unnecessary expenses, but also prevent all enterprise employees from putting themselves at risk.

All in all, speeding up the return of cash and boosting qualifications is not a kind of directional raging, but a kind of refinement, combined with actual operating cash flow management in the real estate development industry region. Refined operating cash flow management, combined with predictable debt repayment plans, can help companies weather the creditworthiness crisis.

Seek external support to help boost the company's qualifications.

Unlike repurchasing bonds, the positive effects of a company's shareholders (or management) buying bonds (or other credit enhancement measures) are significant, and there are no side effects on the enterprise. Under the circumstances of external support, the company's existing internal debt repayment schedule has not changed, and the pace of operation has not changed, yet the bond market has received necessary financial support. Enterprises can also make good use of various new financing channels, seize policy opportunities, and revitalize assets as much as possible.

Risk Factors:

There is a risk that housing prices will continue to fall, and policies will fall short of expectations. Credit repair falls short of expectations, and the risk that corporate refinancing channels will run out.

Disclaimer: This content is for informational and educational purposes only and does not constitute a recommendation or endorsement of any specific investment or investment strategy. Read more
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