Red Star Macalline Holding Group Secures Anchor Subscribers to Proposed Up to RMB 3.5B Bond Issuance; 50% to Be Subscribed by Banks, 40% Insurance Cos.; Plans to Use RMB 3B Proceeds From Prior Bond Issuances, Together with Real Estate Segment Sales to Repay RMB 6.5B Bonds Maturing in H1’21, Plans to List Two Subsidiaries on HKEX, ChiNext

Management of Red Star Macalline Holding Group said during an investor call today, March 2, that the company plans to use RMB 3 billion proceeds from prior issuances and RMB 3 billion to RMB 3.5 billion proceeds from its real estate segment to help repay a total of RMB 6.5 billion bonds maturing in the first half of 2021.

The roadshow was held to market Red Star Macalline Holding Group’s proposed issuance of up to RMB 3.5 billion 2+1 year corporate bond with a tenor of 2+1 year. The initial price guidance of the new issuance is set between 6% to 7.2%, with book building scheduled for March 8.

Management guided on the call that about 50% of the proposed issuance will be subscribed by banks, and 40% by insurance companies, which tend to hold the bond until maturity. As reported, the company told investors earlier that it has secured commitment from anchor investors for at least 70% of the new bond issuance.

Xi Shichang, CFO of Red Star Macalline Group Corporation Ltd., and Yang Qin, CFO of Red Star Macalline Holding Group were on hand during the call.

Holdco Debt Repayment

For RMB 6.5 billion bonds maturing in the first half of this year at the holdco level, the company repaid RMB 1 billion in January. For the remaining maturities, it plans to use RMB 3 billion proceeds from issuance in late 2020 and expected RMB 3 billion to RMB 3.5 billion proceeds from the real estate segment. The management said it has already received RMB 600 million from the real estate segment.

The holdco’s unlisted segments have about RMB 19.6 billion interest-bearing debt maturing within one year as of the end of 2020, of which RMB 7.24 billion is unsecured debt including RMB 6.5 billion bonds issued by the holdco and some bonds issued by the real estate subsidiary.

The company also has more than RMB 12 billion secured debt maturing within one year, including RMB 2.24 billion debt from share pledges, construction financing and commercial mortgage-backed securities. Red Star expects that about RMB 6 billion of the RMB 12 billion secured debt can be extended. As of Feb. 28, the company had repaid a total of RMB 2.7 billion debt.

The company’s real estate segment posted RMB 61.4 billion contracted sales in 2020 and for 2021, has set a contracted sales goal of RMB 56 billion to RMB 60 billion. It expects to receive RMB 36 billion to RMB 37.8 billion in sales receivable and record a net cash inflow of RMB 16 billion to RMB 17.8 billion after deducting RMB 20 billion expenses for construction expenditures and tax expenses. Red Star plans to use RMB 5.5 billion from the net cash inflow to obtain land for RMB 17 billion in 2021. The rest of the net cash inflow will be used to repay debt.

In 2020, the company acquired land usage rights for 14 parcels for a total consideration of RMB 17 billion, with the land parcels mostly in eastern China. As of Dec. 31, its land bank was worth RMB 160 billion.

Red Star currently has RMB 12.7 billion cash in its non-listed subsidiaries. It does not intend to use cash resources to repay debt in 2021, with the exception of the RMB 3 billion from prior bond issuances.

The company added that Alibaba China Technology Co. intends to convert the exchangeable bonds issued by the holdco into shares of the listco due to Alibaba’s strategy in the furniture retail business and its plan to increase holdings in the listco.

Alibaba invested RMB 4.359 billion in the holding company through exchangeable bond “19 Red Star 01EB” in May 2019, which matures on May 14, 2024, according to an announcement at the time.

Listco Debt Repayment

The listed company, Red Star Macalline Group Corporation Ltd., saw full recovery of its self-operated shopping malls during the fourth quarter of last year, with occupancy rates over 92% and rent received more than RMB 2 billion. In 2021, the company expects to further increase the occupancy rates of self-operated shopping malls to 95%.

For its home improvement business, Red Star Macalline Group achieved signed contracts of RMB 4 billion in 2020, with recognized revenue of over RMB 1 billion. In 2021, the company expects signed contracts to increase to RMB 8 billion, with recognized revenue of more than RMB 3 billion.

Red Star Macalline Group had RMB 46 billion interest-bearing debt at the end of 2020, of which 66% was bank loans. Less than 20% was open market bonds, which the company expects to reduce during 2021.

Red Star Macalline Group faces RMB 3.5 billion debt maturity in 2021, including RMB 2 billion due in June and RMB 1.5 billion due in July.

In terms of debt repayment plan, the company forecasted operating cash inflow of no less than RMB 2.5 billion in the first half of 2021 and full-year operating cash inflow of no less than RMB 6 billion. The company also has RMB 3 billion flexibility of cash inflow as shopping malls and properties worth RMB 10.6 billion are not yet pledged. In addition, the company foresees RMB 2 billion cash inflow in May or June from private equity investment projects and divestiture of non-primary assets.

The A-share private placement is going to bring in no less than RMB 1.8 billion net cash inflow, and the issuance is subject to reasonable timing. Its proposed plan to issue new asset-backed securities was approved today, which is forecasted to generate more than RMB 1.1 billion net cash inflow to the company, according to management.

The company emphasized its asset-light strategy and expects slowdown in capital expenditure in 2021 to maintain liquidity. In 2020, the company sold three of its Aegean shopping malls, now owns nine malls and has identified buyers for two malls currently under construction.

S&P downgraded Red Star Macalline Group to BB from BB+, with stable outlook, in February. The company intends to restore the BB+ rating, mainly by lifting EBITDA to RMB 7 billion from RMB 6.6 billion in 2020, and further reducing the interest bearing debt to RMB 45 billion in 2021 from RMB 46 billion in 2020.

Recent Bond Price Declines

Management also explained its recent bond price drops, saying that the sell-off was mainly due to impact from Yongcheng Coal and China Fortune Land Development, as well as conditions of the overall bond market. After repaying bonds maturing in March and July, the company expects its bond price to stabilize as most of the remaining bonds maturing this year are held by its prior anchor investors.

The holdco is also slated to receive about RMB 1 billion dividend from its subsidiaries including the listco and commercial management subsidiary Shanghai Aegean Aolai Business Management Co. Ltd.

Red Star will also consider selling or pledging listco shares, or the 590 million shares of Jinke Property Group’s shares, held by affiliate companies of its chairman, during extreme circumstances.

Management also guided on the call that it plans to publicly list its commercial management subsidiary Shanghai Aegean Aolai Business Management Co., with an expected valuation of RMB 12 billion to RMB 15 billion, on the Hong Kong stock exchange in October. It also plans to list its automotive engineering service subsidiary Dongfeng Design Institute Co., with an expected valuation of RMB 9 billion to RMB 10 billion, on the ChiNext market.

Based on a preliminary review of its 2020 results, Red Star expects to violate only one requirement of the “three red line” policy for property developers set by the Chinese government as its debt-to-asset ratio after excluding advance receipts is expected to reach 72%, higher than the 70% limit.

Capital structure of Red Star Macalline Holding is as follows: