Red Star Macalline Group Corp. Plans to Lower Interest-Bearing Debt by RMB 10B Within Three Years, Receives RMB 1.3B Proceeds From Disposal of Logistics Assets, Plans to Repay Two Onshore Bonds Maturing or Putable in July With Cash on Hand

Management of Red Star Macalline Group Corporation, the listed subsidiary of Red Star Macalline Holding Group, said during an on-site investor event yesterday, June 9, that the company plans to lower its interest-bearing debt by RMB 10 billion ($1.565 billion) within the next three years, by lowering RMB 3 billion to RMB 5 billion interest-bearing debt in 2021 and RMB 2 billion to RMB 3 billion in 2022 and 2023, respectively, according to two sources who attended the event. Continue reading for our Asia Core Credit team's reporting on the Red Star Macalline Group Interest Bearing Debt situation, and request a trial to access legal and financial analysis of hundreds of other performing, stressed and distressed credits in the region. 

The company’s chairman Che Jianxing, CFO Xi Shichang and deputy chairman Guo Binghe were on hand during the meeting with investors.

For its RMB 1.5 billion corporate bond putable on July 13 “16 Hongmei 02” and its RMB 46.8 million corporate bond due July 13 “16 Hongmei 01,” the company plans to repay the bonds with its own cash resources or proceeds from its A-share private placement if it receives the proceeds by then.

Red Star remitted funds using its own cash resources to the China Securities Depository Clearing on June 8 to redeem RMB 1.999 billion put back to the company under its RMB 2 billion 5.35% corporate bond putable June 10 “19 Hong Mei 02,” as reported.

The management guided that for 2021, it expects to receive about RMB 5 billion to RMB 5.5 billion operating cash inflow, RMB 3.7 billion proceeds from its A-share private placement of which RMB 2 billion will be used to repay its debt, RMB 2.3 billion cash inflow from its logistics assets to Tianjin Yuanchuan and RMB 1 billion cash inflow from its private equity investment. It has also decided to cancel dividend payment for this year and lower its capital expenditure by spending only RMB 1 billion on construction of existing projects.

The company does not have any onshore issuance plan for 2021, although it has RMB 5.5 billion onshore issuance quota left which expires in late 2022. Given the appropriate market window, Red Star may consider issuing RMB 500 million to RMB 1 billion bonds this year. It does not plan to buy back any bond from the secondary market and plans to continue marketing new commercial mortgage-backed securities.

For the company’s sale of logistics assets to Tianjin Yuanchuan, Red Star has received RMB 1.3 billion proceeds on Monday, June 7, and it expects to receive another RMB 1 billion in late June or early July once it completes the relevant business and commercial registration changes.

Operation-wise, Red Star Macalline Group Corp. plans to open 58 new shopping malls in 2021 and 50 to 60 new shopping malls every year after that.

Regarding its debt structure, the company will lower the ratio of unsecured bonds so its interest-bearing debt will consist primarily of bank loans. It aims to lower its gearing ratio to about 50% within the next three years and return its offshore rating to investment grade within 1.5 years, management guided.

As of the end of 2020, Red Star Macalline Group Corp. had less than RMB 46 billion interest-bearing debt, which included RMB 29.9 billion bank loans with long tenors, more than RMB 8 billion bonds including offshore notes and about RMB 6 billion commercial mortgage-backed securities. Average financing cost was around 5%.

For its holdco Red Star Macalline Holding Group, Che said that the company will continue to expand collaboration with Sino-Ocean Capital, aiming to generate more proceeds than the RMB 1.03 billion that the agreement is designed to bring in. Future proceeds from the collaboration with Sino-Ocean Capital will be used to repay the holdco debt.

As reported, Sino-Ocean Capital has agreed to acquire an 18% stake of Chongqing Red Star Macalline Enterprise Development Co., including the Shanghai Red Star Macalline Real Estate Co. under Chongqing Red Star but excluding Shanghai Red Star Macalline Property Development Co., for RMB 1.03 billion.

Capital structure of Red Star Macalline Holding is as follows: