Chinese real estate industry crisis is brewing as three major real estate companies, Jiayuan International, Datang Group, and Dafang Real Estate, announced their delisting from the Hong Kong Stock Exchange on October 29th. Industry experts believe that the cooling period for the Chinese real estate sector has arrived.
According to reports from “First Financial,” the reason for the delisting of these three companies is their failure to publish their 2022 annual financial reports. Moreover, their stocks have been suspended for nearly 18 months, eventually resulting in their delisting from the stock exchange.
Datang Group, whose listing-to-delisting period is less than 4 years, was founded by Taiwanese entrepreneur Yu Yingyi in 1984. Yu Yingyi and his friends ventured into Xiamen in 1995, expanding their market in the surrounding areas. Despite originally planning to go public in 2009, it wasn’t until 2020, after submitting three prospectuses, that Datang Group finally listed on the Hong Kong Stock Exchange. In 2021, Datang Group achieved sales of up to 50.5 billion yuan.
Meanwhile, Jiayuan International, listed on the HKEX in March 2016, set a goal in 2019 to exceed 100 billion yuan in contract sales within three to five years, becoming a market focus due to a stock price flash crash.
Established in 1996, Dafang Real Estate went public on the HKEX in 2018 with a target of reaching 300 billion yuan in the following five years. At that time, the company’s sales had just surpassed 10 billion yuan.
Simultaneously with the delisting of the three real estate companies, Xiangsheng Holdings and Shangzhi Group also announced the cancellation of their listing status.
Data shows that in 2023, 12 real estate companies in China were delisted from the mainland A-shares and Hong Kong H-shares markets, including several hundred billion yuan market cap companies.
“First Financial” believes that the wave of delistings is primarily due to the cooling period in the Chinese real estate sector, impacting aggressive and highly leveraged medium and small real estate companies immediately.
In 2021, Datang Group achieved sales of 50.5 billion yuan, but by 2022, its sales plummeted to 19.6 billion yuan. Profits also declined, with business revenue dropping by 29.27%, gross profit by 49.5%, and net profit attributable to shareholders by 79.12% in the first half of 2022.
As business revenue and profits declined, in November 2021, S&P lowered its outlook for Datang Group to “negative.” As of the end of June 2022, Datang Group had total assets of 57.359 billion yuan, total debt of 47.484 billion yuan, and an asset-liability ratio of 82.78%.
Regarding the impact of company delistings on the real estate sector, Song Hongwei, Joint Director and Chief Researcher of the Taikoo Institute, stated to “First Financial” that the intensive delistings have three main effects. Firstly, delisted companies lose access to public fundraising channels, leading to further financial strain. Secondly, it negatively affects company credit, potentially impacting cooperation with upstream and downstream partners. Lastly, it will have a negative impact on the industry, especially on recently restored industry confidence and expectations.
Liu Shui, Director of Enterprise Research at China Index Research Institute, also told “First Financial” that real estate companies exiting the capital markets will have a significant impact on daily operations and debt resolution. On one hand, delisting tarnishes the company’s market image, potentially decreasing consumer and investor confidence, affecting sales. On the other hand, exiting the capital market limits financing channels, making options like issuing preferred shares or debt financing more difficult, subsequently lowering the company’s valuation, damaging shareholder interests, undermining investor confidence, and negatively impacting debt restructuring and risk mitigation.
Yihan Think Tank previously stated in a report that delisting does not mean complete collapse for a company; it simply indicates that, at a certain point, the company no longer meets the requirements of the capital market and loses its financing function. However, it cannot be ignored that the road ahead for these companies will be more challenging, and self-rescue will be even harder to achieve.