This article is from WeChat official account:Yiouwang (ID: i-yiou) span> , author: Guo Wei, editor: Gu Yan, from the title figure: vision China
The core point of this article
1. Greenland has not been a pure real estate company since its inception, diversification is its destiny;
2. With low gross profit margin, high debt ratio, and dependence on the development of the main business, Greenland’s diversified business increased revenue without increasing profits, but it dragged down the financial status of the group;
3. Greenland currently has problems such as huge amount of related debt, high debt ratio of cornerstone business, and weak business hematopoietic ability. Mixed reform and business divestiture are all potential options.
“Press the gourd and lift the scoop”, the debt turmoil of Greenland Group continues to ferment on the Internet.
In early February, Anjuke and many other media simultaneously released “Greenland Group Northeast Region, Please Pay Your Arrears”, exposing that Greenland Group’s Northeast Region owed network service fees ranging from 100,000 to 1.9 million in total. The amount is 3.92 million yuan. Four months ago, NetEase Real Estate also issued “Greenland, Please Pay”, publicly demanding a total of 75,000 yuan in advertising funds.
The incident of media arrears is just the tip of the iceberg of the financial problems of Greenland nationwide. From arrears with contractors, delay in payment of government land transfer payments, to delays in the delivery of houses for several years, to employee salary disputes, and even mandatory house purchases, disputes between green space and various entities have frequently occurred in recent years.
The recently released Greenland 2020 performance report shows that the group’s annual revenue growth rate hit a record low since its listing, and the net profit attributable to the parent fell for the first time. Among them, the real estate business, which is the main segment of revenue and profit, has a year-on-year decrease of 24.3%, 10.7%, and 7.7% respectively.
Slow performance growth, declining profit levels, and high debt problems. The gap between the revenue of the real estate sector and the first camp “Wan Biheng” has further widened, causing Greenland’s share price to fall to 5.08 yuan at the end of February, which is equivalent to 54% of last year’s high (9.49 yuan), 2015 historical high (42.98 yuan) 12%. Shareholders who can’t bear it, strongly recommend changing their name to “Red Land” in the forum.
Why, once China’s largest real estate company, is now caught in a quagmire of financial disputes? This article will try to sort out the debt puzzle of Greenland Group from the perspective of its diversified business.
“red top” green space
In July 1992, Zhang Yuliang resigned from his job as deputy director of the Housing and Construction Office of the Shanghai Agriculture Committee and took the lead in the construction of the Shanghai Greenland Corporation, funded by the Shanghai Agriculture Committee and the Construction Committee, to engage in municipal greening and real estate development.
Taking advantage of the south tour’s speech, Zhang Yuliang, a keen business man, led the team to play a model of “providing green houses with houses and raising houses with green houses”—partial real estate funds were invested in urban public greening free of charge; greening In turn, it can drive real estate appreciation and at the same time obtain government policy support.
The innovative model with both economic and social benefits enabled Zhang Yuliang and Greenland to appear on the People’s Daily, CCTV and other central media, planting the seeds for future take-off. Investing in urban public resources to obtain real estate premiums, this kind of “beating cattle” has also run through the development history of green land for more than 20 years.
Be good at resource leveraging and deeply understand the government. In a sense, Greenland has not been a pure real estate company since its inception, but a diversified comprehensive group is its real destiny.
Before the first mixed reform in 1997, Greenland had been a 100% state-owned developer. Zhang Yuliang, who came out of the body system, is also regarded by the outside world as a “red-top businessman” in the new era.
Zhang Yuliang himself does not shy away from attaching importance to government relations. He has publicly stated to the media many times that “Greenland is a developer that understands the government” and “Greenland Group does what the local government wants to do, but the local enterprises cannot or are not easy to do. It develops and develops while serving the whole country. Strengthen yourself”.
Accurately understanding the needs of the government is an important magic weapon for greenfield development. Zhang Yuliang once bluntly stated in an interview with The Economic Observer that commercial real estate and overseas expansion are “all government needs.”
Since then, Greenland has successively deployed energy, infrastructure, finance, trading ports, retail, automobile sales, smart technology, hotels, health care, property and other industries, forming a huge industry group. Among them, many businesses such as energy, infrastructure, finance, and trading ports have stepped onOn the front line of government demand, this allows green space to rapidly achieve cross-domain development within a corresponding period of time.
In 2014, energy revenue once accounted for about a quarter of the total revenue from green space. At present, infrastructure may have surpassed real estate as the largest source of revenue for green space.
Coordination or cumbersome
Today’s green space has evolved from a single main real estate business to “real estate and infrastructure as the main business, and the simultaneous development of comprehensive industries such as finance and consumption.”
Zhang Yuliang once told The Paper that the manufacturing attributes of real estate will rise in the future. The general idea of the diversified development of greenfields is to actively extend to the upstream and downstream of the industrial chain, related industries, and coordinated industries on the basis of consolidating the original advantageous industries such as real estate, to develop “limited diversified” operations, and to create an “ecological circle “Business model of collaborative development.
Infrastructure investment is the best proof of Zhang Yuliang’s realization of multiple ideas.
The infrastructure market has a market size of more than 20 trillion yuan, which is highly related to the logic of real estate development. It can just play to the advantages of green space in the relationship between government and business, dilute the internal comprehensive cost of the enterprise, and even use it to assist in the acquisition of land.
After the energy business was divested in 2015, Greenland continued to increase its size in the field of infrastructure engineering, spending huge sums of money to acquire or invest in leading infrastructure companies in Tianjin, Guangxi, Shanghai, Guizhou, Jiangsu, Xi’an, Henan and other places, using capital in a short period of time Power has built itself into an infrastructure giant.
The return on capital is immediate. In 2015, Greenland’s infrastructure revenue was less than half of the real estate business and only accounted for 20% of total revenue. Since then, the infrastructure business has contributed more than 60% of the group’s business growth. In the third quarter of 2020, infrastructure revenue exceeded real estate business by 147.2 billion yuan and 144.6 billion yuan, becoming the group’s largest business, accounting for 45% of the company’s total revenue.
At the same time, Greenland is also taking advantage of the east wind of the free trade zone to focus on building a commodity sales business centered on trading ports. The financial report shows that this part of the business achieved 47 billion yuan in sales in 2019, with a compound annual growth rate of 31% in 2016-2019.
But the road to diversification of green space has not been smooth sailing.
If you talk about business competitiveness and other issues, you can still use time to settle them. After the introduction of the “three red lines”, the debt problem has become a major event that has made greenfields “burning eyebrows”.
Relevant departments stipulate that the debt level of real estate companies must meet three major policy standards: the debt-to-asset ratio after excluding advance receipts should not exceed 70%; the net debt ratio should not exceed 100%; and the cash short-term debt ratio should not be less than 1. According to the situation of touching the red line, the real estate enterprises are divided into four gears of red, orange, yellow and green, and the growth rate of their interest-bearing liabilities shall not exceed 0, 5%, 10%, and 15%.
As of the third quarter of 2020, the three indicators of Greenland are 82.38%, 183.45%, and 0.78. The “three red lines” are all stepped on, and there is still a certain distance from the qualified line.
The 2020 performance report shows that the annual revenue growth rate of Greenland Group hit a record low since its listing, and the net profit attributable to the parent company fell for the first time; the debt-to-asset ratio is still as high as 88.28%. 100 million yuan.
Compared with “Wan Biheng” and other leading real estate companies, real estate revenue accounted for more than 95% of total revenue. Greenland’s diversified business accounted for a relatively high proportion, and real estate development only accounted for 45% of total revenue. However, this did not share its debt risk. On the contrary, due to the continuous pursuit of scale expansion, the debt ratio of each business segment remained high.
Take the two pillar businesses of real estate and infrastructure as examples, both of which require large capital turnover to leverage projects. In 2019, the total revenue of real estate and infrastructure accounted for 89% of the company’s total revenue, but the debt ratio was as high as 88% and 83%, respectively, which were above the 70% red line of policy guidance. The debt ratios of major consumer and financial sectors are also as high as 86% and 76%.
There is also a large-scale asset-debt relationship between various business sectors. The 2019 financial report shows that the assets and liabilities of the Greenland real estate sector reached 1.95 trillion and 1.75 trillion, respectively, far higher than the 1.14 trillion and 1.01 trillion of the group as a whole after consolidation.
If other sub-sections are divested, the debt scale of Greenland Real Estate business will surpass Country Garden to rank second in the country, but its revenue will only be 36% of Country Garden’s over the same period. The asset scale of the greenfield real estate sector is also obviously puffy among the leading real estate companies, and the total asset-to-income ratio deviates greatly from the average value of the leading friends.
In other words, Greenland’s real estate sector and diversified businesses may not have a strong synergy effect, but the result of “blood transfusion” from real estate to its diversified businesses.
On the one hand, the gross profit level of the business is low and the hematopoietic ability is weak, and on the other is the huge debt scale. It is not small for greenfields to reduce the leverage. The introduction of external forces for capital operation has become an important option.
Previously, there were market rumors that Greenland might be acquired by a “top ten real estate company”, but Zhang Yuliang personally refuted the rumors. He said that for the second mixed reform, the strategic investors Greenland hopes to introduce are central financial institutions.
According to the newly disclosed capital plan, Greenland plans to achieve a green short-term debt ratio by splitting its business and introducing investment in mid-2021. The net debt ratio will fall to the green range before June 30, 2022, and in 2023 By June 30, the interest-bearing debt will be reduced to less than 280 billion yuan. Financial, trading ports, major infrastructure and other sectors are among the options for splitting and listing.
However, in the case of huge internal debts, the split and listing will inevitably face corresponding financial difficulties. More importantly, how should Greenland tell the capital story of its split business?
There is not much time left for green space
God seems to have played a joke on the diversification of the green space.
In October 2017, Greenland sold its property company to Ya Life, a property group under Agile, for only RMB 1 billion. In recent years, the value of the flow entrance owned by property companies has been re-excavated. The market value of property platform providers such as Country Garden Services and Evergrande Properties once surpassed the parent company, which partially eased their leverage pressure. However, Greenland Group, which originally had a large number of properties in the Yangtze River Delta, missed the capital feast.
According to the relevant regulations for state-owned enterprises to retire before the age of 63, Zhang Yuliang, who is currently 65, is already in “extended service.” It will take some time for the dust to settle for the second mixed reform of the green space led by it recently.
If the leverage problem cannot be resolved as soon as possible, Greenland will face an awkward situation where interest-bearing liabilities cannot be increased, and the high-growth business model it has always relied on may be unsustainable.
However, Greenland should think more about how to get rid of the paranoia of scale as soon as possible and find a benign development method that combines capital imagination and industrial growth space.
In this way, the foundation will last forever.
This article is from WeChat official account:Yiouwang (ID: i-yiou) span> , author: Guo but