Zhenro Properties Plans to Buy Back Due 2022 Offshore Notes, Redeems $100M Notes Issued by Zhenan Glory on Jan. 10, to Redeem Another $50M Notes in Early March

Management of Zhenro Properties said during an investor call today, Jan. 14, that the company and its major shareholder plan to buy back its due 2022 offshore notes, comprising primarily notes due in August and September, according to two sources familiar with the matter. Continue reading for Reorg's Asia Core Credit team's reporting and analysis of Zhenro Properties' plan buy back its offshore notes  and request a trial to access analysis of hundreds more stressed, distressed and performing credits. 

The company reiterated that it would redeem $200 million 10.25% senior perpetual capital securities in full on March 5 in an effort to save financing costs, as coupon rate of the perpetual securities will go up to 15% from 10.25% if not redeemed.

On Jan. 10, Zhenro redeemed $100 million notes issued by joint venture Zhenan Glory and plans to redeem another $50 million notes in early March, which were also issued by Zhenan Glory.

Financing

In January so far, Zhenro had received more than RMB 2 billion development loans. Since December 2021, it has received about RMB 13 billion total loans, one-third of which are development loans and two-thirds mortgage loans.

It has also obtained a total of $70 million bilateral loans from two foregin banks with tenors of 12 to 18 months and an average interest rate of no higher than 5%.

Bank of China has provided more than RMB 9 billion loan quota to the company, mainly in the form of onshore development loans.

Zhenro recorded about RMB 140 billion contracted sales in 2021 and RMB 8 billion sales in January so far.

Land Acquisition

Management said the company has repaid all outstanding land premiums and does not have any land acquisition plans as its land reserves meet the company’s development needs for the next two years.

It will monitor the market after the Lunar New Year to decide whether to add more land to the reserves. Zhenro spent RMB 25 billion on land acquisition in 2021, including RMB 6 billion unpaid land premiums left from 2020.

Zhenro does not have any plan to sell its property management unit, and nor does it plan to sell any real estate projects to other developers. It is conserving cash to prepare for potential M&A opportunities.

Cash, Debt

As of Dec. 31, 2021, the company’s consolidated cash level stood at RMB 38 billion to RMB 40 billion, including 30% to 35% in escrow accounts.

Attributable cash was about RMB 20 billion, and the company has $900 million to $1 billion cash available for use after deducting the cash in escrow accounts and redeeming the perpetual notes and the $150 million notes issued by Zhenan Glory.

Zhenro has lowered its total debt to RMB 67 billion currently from RMB 72 billion as of June 30. It plans to keep its gross profit margin at around 19% to 20% and increase its net profit margin by no more than 5%.

In response to questions about the company suspending a planned issuance of RMB 2 billion asset-backed securities, management said that it had suspended the issuance plan mid-way in 2021 due to tightened regulations.

Management said that Zhenro does not have any outstanding wealth management products or other off-the-balance-sheet debt outside the two notes issued by Zhenan Glory. Its trust loan balance accounts for about 2% to 3% of its total debt.

Zhenro has about RMB 2 billion to RMB 3 billion outstanding commercial bills and has reserved additional cash to repay constructors before the Lunar New Year, according to management.

Below is Zhenro’s capital structure: