Xiamen C&D Says Proposed Acquisition of Red Star Shares Does Not Involve Debt Undertaking; Co. to Help Red Star Lower Total Indebtedness, Financing Costs Upon Completion

Management of Xiamen C&D Inc. said during an investor call this week that its proposed acquisition of about 30% of Red Star Macalline Group Corporation Ltd’s total issued share capital does not involve any debt undertaking. Management said that Xiamen C&D does not expect major risk resulting from Red Star’s debt repayment pressure as most of Red Star’s debt is secured with subsidiaries serving as the borrowing entities, according to two sources familiar with the matter.

Management said on the call that the transaction does not involve holdco Red Star Macalline Holding Group’s real estate business as listco Red Star Macalline Group Corporation Ltd. is relatively independent from the holdco.

As of Sept. 30, Red Star’s total debt stood at RMB 75.6 billion ($11.151 billion), including RMB 38.2 billion interest-bearing debt, of which about RMB 29.5 billion is long-term debt primarily secured against commercial mall properties. The collateral’s asset value surpasses the amount of long-term debt, according to management.

Management said on the call that most of Red Star’s interest-bearing debt consists of loans borrowed by subsidiaries that are secured against the subsidiaries’ properties and guaranteed by listco Red Star Macalline Group Corporation. Therefore, most of the company’s debt is at the subsidiary level, as opposed to at the listco level, suggesting de minimis guarantee obligations for Xiamen C&D.

Upon completion, Xiamen C&D expects to help lower Red Star’s total indebtedness and financing costs, management added. Red Star has about RMB 9 billion to RMB 10 billion short-term debt, and its annual net cash inflow from operating activities exceeds RMB 4 billion, which can be used for debt repayment, according to management.

Below is the capital structure of Red Star: