Outstanding payment of 1.986 billion yuan! SOHO China Warning Supplementary Agreement | Amount | Warning
On August 18th, SOHO China released its interim performance announcement for the year 2023. In the announcement, SOHO China stated that the group may experience cross default.
According to the announcement, Beijing Wangjing Sohou Real Estate Co., Ltd., a subsidiary of SOHO China, received a tax payment notice from the local tax authority in August 2022, requiring it to pay RMB 1.733 billion in land value-added tax related to Tower 1 and Tower 2 of the Wangjing SOHO project before September 1, 2022. Starting from the date of tax arrears, an additional late payment fee of 0.05% of the late payment tax will be charged on a daily basis.
SOHO China stated in the announcement that as of June 30, 2023, RMB 30.6 million of land value-added tax had been paid, and there was still RMB 1.986 billion of land value-added tax and related late fees that had not been paid.
SOHO China stated in its announcement that the late payment of land value-added tax may result in cross default of the group's total bank loan principal of RMB 4.232 billion as of June 30, 2023. The principal of the cross default loan is RMB 4.232 billion, with interest of RMB 10.576 million, including loans that mature after June 30, 2024 according to the original contract repayment date. Due to the possibility of immediate repayment by their respective borrowers, they were reclassified as current liabilities on June 30, 2023.
In addition, SOHO China also reminds in the announcement that according to the Tax Collection and Management Law, local tax authorities may take other compulsory measures, including but not limited to seizure, sealing, auction or sale of relevant properties in accordance with the law, and imposing fines of 50% to five times the amount of unpaid or underpaid land value-added tax for late payment.
SOHO China stated that the group has been in continuous communication with local tax authorities regarding unpaid land value-added tax and related late fees, and has reached an agreement on a specific repayment plan. It will continue to dispose of several commercial properties to pay off part of the land value-added tax. With the support and cooperation of relevant government agencies and tax authorities, 25 sets of commercial properties have been sold from September 1, 2022 to the date of approval of the interim concise comprehensive financial data. As of June 30, 2023, RMB 30.6 million in land value-added tax has been paid, and RMB 7 million has been further paid from June 30, 2023 to the date of approval of the interim concise comprehensive financial data.
As of June 30th, SOHO China's cash and cash equivalents were approximately 627 million yuan, bank loans and other loans were approximately 16.046 billion yuan, total liabilities were approximately 31.519 billion yuan, and total assets were approximately 68.92 billion yuan.
As of June 30, 2023, SOHO China has signed supplementary agreements with major existing borrowers to modify repayment plans, involving a total loan amount of 7.27 billion yuan, including 59.682 million yuan of loans that the group failed to repay on time in December 2022. Meanwhile, as of June 30, 2023, SOHO China's bank and other borrowings amounted to RMB 16.047 billion. The above loan is secured by the investment property held by the group with a book value of 53.992 billion yuan.
In addition, SOHO Group has actively communicated and will continue to negotiate with several financial institutions, including lenders of existing cross default bank loans, to restructure the Group's existing loans. After June 30, 2023, the group has signed a supplementary agreement with a bank to extend the repayment period of a bank loan with a principal amount of RMB 359 million.
According to the announcement, as of June 30, SOHO China's operating revenue was approximately 8215 million yuan, compared to 896 million yuan in the same period of 2022; The gross profit in the first half of the year was 678 million yuan, compared to 742 million yuan in the same period of 2022; The company's operating profit is about 490 million yuan, a year-on-year decrease of about 32.99%; The net profit is about 14.7 million yuan, a year-on-year decrease of about 92.4%; The net profit attributable to the shareholders of the parent company was RMB 13.613 million, a year-on-year decrease of 92.86%; The gross profit margin is 83%, and the net profit attributable to shareholders from operating activities is about 207 million yuan. The company's net asset liability ratio is about 42%, and the average borrowing cost is about 4.7%.
In the first half of this year, SOHO China's rental income was about 819 million yuan, and the average occupancy rate of investment properties has stabilized and recovered to about 79%.
When looking forward to the second half of 2023, SOHO China stated that opportunities and challenges coexist in the second half of 2023. The group will continue to implement a prudent business strategy, increase efforts and measures, improve the overall property rental rate and stable operating cash flow of the group, and provide greater support and guarantee to meet external difficulties and challenges. "We believe that the Chinese economy has tremendous development resilience and potential in the long run, and the long-term positive fundamentals have not changed. The long-term stability and asset scarcity of the Beijing and Shanghai office markets remain attractive to investors. With the introduction of various government policies and measures to promote economic development, market activity will gradually rebound, laying the foundation for the revitalization of the office market in the second half of the year."
As of the close on August 18th, the stock price of SOHO in Hong Kong was HKD 1.16 per share, with a latest market value of HKD 6.031 billion.
