From the "cup-breaking" transaction to the tearing up of the agreement, Sunac, with a debt of 997.1 billion, has no money.

Recently, real estate developers are not having a good time. The debt crisis of Evergrande and Baoneng Group continues to simmer, and Sun Hongbin, chairman of the board of directors of Sunac, who just said at the 2021 interim results exchange meeting that "everyone except us may have a thunderstorm" turned around and tore up the hotel management agreement with Wanda . It seems that Sunac China, with a total debt of 997.1 billion, is not as "comfortable" as Sun Hongbin said.

On the evening of September 10, Wanda Hotel Development (00169.HK) announced that it received a notice from Sunac China (01918.HK) on September 10. According to the notice, Sunac China has informed Wanda Hotel Development that due to the impact of the new crown epidemic and the adjustment of Sunac China's business strategy, it will terminate the 21 contracts signed with Wanda Hotel Development that are held by Sunac Group and managed by Wanda Hotel Development. Hotel Management Agreement.

According to the announcement, these 21 hotels include 19 hotels that are in operation and 2 hotels that are under construction and have not yet started operation.

Wanda Hotel stated that the company and Sunac China are currently negotiating on follow-up arrangements for termination and potential compensation for Wanda Hotel.

Judging from the announcement, Sunac China unilaterally tore up the hotel management agreement with Wanda Group.

From the "cup-breaking" deal to the tearing up of the management agreement

This cooperation deal dates back to 2017.

On July 10, 2017, Wanda and Sunac China both announced that 13 of their cultural tourism projects, including 76 hotels, would be priced at the price of registered capital and sold to Sunac for 63.2 billion yuan. . Among them, the cultural tourism project transferred 91% equity for 29.575 billion yuan, and the hotel project was completely transferred for 33.595 billion yuan.

However, nine days later, on July 19, 2017, Sunac brought R&F Properties into the deal because Sun Hongbin only wanted the 45,000 acres of land reserve behind Wanda Cultural Tourism assets (data Quoted from the Economic Observer report in July 2017), as for the hotel, Sun Hongbin roped in Li Silian, chairman of R&F Real Estate. However, the "blind date" between the two parties turned into a 3P (Partner) deal, and according to the media, the new entrant was so aggressive in lowering the price that Wanda King even threw a glass of wine angrily in the conference room.

However, no matter whether you are angry or throwing a cup, we still have to do business. In the end, the marriage between the three companies was successful, with Sunac acquiring 91% of Wanda’s 13 cultural tourism projects for 43.844 billion yuan. R&F Real Estate acquired the entire equity of 77 city hotels for 19.906 billion yuan.

As of November 14, 2017, the announcement of Wanda Hotel Development (00169) once again adjusted the transaction content of the three parties. The specific content is: Wanda sold 54 hotels (including 52 opened hotels) to R&F Real Estate and 2 hotels under construction), and sold 7 hotels that have been opened and 18 hotels under construction to Sunac. In other words, in the end, Sunac had no choice but to acquire 25 Wanda hotels.

Based on the aforementioned transaction price, the average price of a single hotel is RMB 250 million, so the acquisition price of the 25 Wanda hotels taken over by Sunac is approximately RMB 6 billion.

Sunac’s decision to tear up the hotel management agreement this time is of course related to the fact that the epidemic has severely damaged the hotel business. Management costs remain high, but hotel revenue is getting worse and worse. But another important reason is that under the pressure of the "three red lines", in addition to reducing the debt ratio, Sunac also faces tremendous pressure to reduce the overall debt scale. Judging from the fact that Sunac is willing to tear up its agreement with Wanda and pay liquidated damages, Sunac is under great pressure to reduce its debt.

Heavy debt

In the final analysis, the cash in Sunac’s pocket is not enough.

The 2021 semi-annual report shows that Sunac China’s total assets are 1.205453 billion yuan, total liabilities are 997.122 billion yuan, and the asset-liability ratio is 82.72%, a decrease of 1.24% from the end of 2020.

As of the end of 2020, Sunac China’s total assets were 1.108405 billion yuan, total liabilities were 930.575 billion yuan, net assets were 177.83 billion yuan, and the asset-liability ratio was 83.96%.

From total liabilities of 96 billion yuan in 2015 to nearly one trillion yuan in total liabilities in 2021, Sunac China expanded its debt scale 10 times in less than 6 years! The ultimate risk bearers of these debts are of course banks and other financial institutions.

Judging from the "three red lines" requirements, as of the end of June 2021, Sunac China's net debt ratio was approximately 86.6%, and the unrestricted cash short-term debt ratio was approximately 1.11. Assets and liabilities after excluding advances from accounts The rate is approximately 76.0%. Among the three red lines, Sunac barely met two of the standards, but its asset-liability ratio after excluding advance receipts still fell below the "red line."

Although the ratio of unrestricted cash to short-term debt has temporarily reached the standard, it is not safe. As of the end of June 2021, Sunac held unrestricted cash of 101.1 billion yuan, but short-term interest-bearing liabilities were as high as 91 billion yuan. Liquidity is stretched thin, and the line will be stepped on again if you are not careful.

Looking at the past three years, Sunac’s interest expenses have been as high as 14.6 billion yuan, 26 billion yuan and 15.2 billion yuan. In the first half of 2021, interest expenses have been as high as 13.1 billion yuan, but the net profit in the first half of the year was only 12 billion yuan. , not enough to pay the loan interest.

This is a very dangerous signal. Sun Hongbin said at the interim results meeting that "financing costs will be reduced from the current around 8% to less than 5% within three years." This wish is of course very good. , but the debt ratio is so high that the rating cannot be lowered, and the cost of real estate financing will only get higher and higher.

More importantly, the future real estate sales trend is not optimistic. Sun Hongbin said frankly at the 2021 interim results meeting, "The market pressure in the second half of the year is relatively high, the entire credit market is relatively tight, and the sales pressure in the second half of this year is very high. It is expected that the market will be quite tragic in the second half of the year."

Faced with trillions of liabilities, Sun Hongbin’s bold words, “Everyone except us may have a thunderstorm.” Apart from emboldening himself, it seems unable to convince investors. Since the beginning of 2020, Sunac China's share price has fallen by 60%, and there is currently no sign of stopping the decline.

As the debt crisis of giants such as Evergrande and Baoneng continues to grow, there may be a big question mark as to whether Sunac, which has expanded more aggressively in the past few years, can survive alone.