Pressure on property developers- A quick look at Central China Real Estate (CCRE)

News of pressure on publicly listed property developers are nothing new. Here are a few choice selects of how badly things are, year to date.

But today, I am going to lightly look at Central China RE, ticker 832, which had fallen a fair bit:

Although I would arguably say that it is a bit misleading, since they had distributed 41 cents of dividend, as well as a 1-to-1 spin off of CC Management, a property project management company. 

Both CCRE and CCMGT suffer dramatic amount of decline which I would not elaborate.

The problem with CCRE might not be with the bank debt.

CCRE's debt/leverage instruments are classified into 4 types:

1) Bank Debt

2) "Other" loans

3) Corporate Bonds

4) Senior Notes.

Data is taken off its interim report.

Assuming that this crisis last for another good 2 years without CCP intervention, the company faces an approximate 15.7B in principal to repay. The best case scenario is that the banks would allow this company to refinance its debts. That would mean a relief of 4.5B. There is still about 11B of senior notes to pay.

Even without the best case scenario, it has about 10.8B in cash, and 5.6B in restricted cash deposits. I think it is probable that debt would not be the problem.

The company is opportunistically reducing the amount of senior notes payable by redeeming them at this moment, but looking at the take up rate, it is not high. I believe only widespread contagion could change this.

Ask prices for some of its bonds are really depressed (from Bondsupermart, 6-Nov)

And while not interest-bearing, of particular worry is its contingent liability of 51.8B, which are made towards customers of their properties underdevelopment. Could this sum be adequately covered by its other assets?

There is another 54B in payables, inadequately "covered" by account receivables of 24B.

In summary, given no support from the G, the situation at CCRE looks like this:

This is given that the worst case scenario that all the mortgage loan holders (customers) defaults (under "contingent liabilities"), which is rather unlikely. Mr Wo Po Sum, the overwhelming shareholder of CCRE, might contribute positively to its liquidity. However, his networth at this moment is uncertain.

The current market caps of its listed subsidiaries could be sold at current prices and potentially tide the owner over. Take note that their prices had declined over the months:

Central China Management, 3.78B HKD (68% shareholding of 3.11B RMB)

Central China New Life, 6.22B (69% of 5.11B RMB)

I have not looked at CCNL, but I believe the valuation of CCRE and CCMGT are not demanding, and insiders has bought a respectable amount of shares using their own money in the recent months.

Central China (832) Insider buying records above. That is about 40m of shares bought in just two months, of the 3 billion shares outstanding.

Central China Management (9982) Insider buying records above. Approx 1.7m shares bought in 2 months, total approx 3.3 billion shares outstanding.

As such, I think CCRE has a good chance of emerging from this crisis, especially if the CCP steps in.

Both CCRE and CCMGT represents a total of 15.2% of my portfolio