Hong Kong-listed company Honglong China Real Estate Group Limited recently announced that due to a liquidity crisis, it is expected to be unable to pay the approximately 857,600 USD in interest due on June 17, which may trigger a debt default. This event marks another mid-sized enterprise in the Chinese real estate industry falling into financial distress.
According to the announcement, Honglong China Real Estate had previously issued a total of 180 million USD in notes, but due to severe liquidity pressure, the company decided to not pay the interest in order to ensure the necessary funds for project delivery.
As of December 31, 2024, Honglong China has approximately 193 million RMB in interest-bearing bank and other loans that have not been repaid on time, triggering default clauses on notes due in November 2025. Additionally, 930 million RMB in interest-bearing bank and other loans have now become “demand repayment,” further exacerbating the company’s financial difficulties.
Headquartered in Shanghai, Honglong China Real Estate Group is controlled by the Lu family from Changzhou. The family had deep roots in the textile industry for over a decade before establishing Honglong Real Estate in 2007 to enter the real estate market.
In its first decade, Honglong Real Estate focused on the local market in Changzhou without expanding externally. After successfully listing on the Hong Kong Stock Exchange in July 2020, the company embarked on an aggressive expansion mode. In November 2020, it won a large residential land plot in Guangzhou’s Zengcheng District for 3.83 billion RMB, marking its entry into the Greater Bay Area. This investment nearly doubled the company’s revenue in the first half of the year.
In the Yangtze River Delta region, Honglong secured mixed-use land in Yiwu, Jinhua, with a premium rate of 31.71%; in Yancheng, Jiangsu, it won a plot with a 93% premium rate, becoming the first land plot with a unit price exceeding 10,000 RMB that year; and in Rugao, Nantong, it acquired land with a 77.14% premium rate, setting a new regional price record.
However, these high premium land acquisitions came at a time when the Chinese authorities introduced the “three red lines” policy to strictly control financing for real estate companies, setting the stage for today’s financial troubles due to high leverage expansion.
By the end of 2024, Honglong China Real Estate had a total debt of 15.236 billion RMB, with a debt-to-equity ratio of 65.35%. More concerning is the company’s current liabilities of 13.351 billion RMB, of which short-term debts due within one year amounted to 2.921 billion RMB, while its cash and cash equivalents were only 266 million RMB, far from sufficient to cover the short-term debts, highlighting the fragility of its financial chain.