The Battle for 30 Billion Luxury Housing Projects: Why Is Li Ka shing Causing Controversy by Killing the Horse Gun? Changshi Group | Debt | Li Ka shing

Recently, it was reported that Li Ka shing's subsidiary, Chang Shi Group, is eyeing the related debt of the Hong Kong luxury property Kaiyue jointly developed by mainland real estate company Longguang Group and Hejing Taifu, with the intention of acquiring the corresponding debt to control this unsold property. Longguang Group and Hejing Taifu believe that this will lead to the failure of the overseas debt restructuring of the two companies.

Sources close to the two real estate companies told China News Service that the current situation of Kaiyue's redemption of syndicated bonds is normal, and the project operation is also normal.

On the morning of the 27th, China News Service sent interview questions to Changshi Group and HSBC regarding the purpose and progress of acquiring debt, but as of the time of publication, no response has been received.

6 years ago, there was a confrontation

On March 3rd, Guangdong based real estate company Hejing Taifu held a global luxury home press conference in Guangzhou, attended by a group of company executives. At the press conference, the company's top five series of products, "Zhen Series," were successively unveiled. Among these five projects, three are located in Guangzhou, one in Chengdu, and one in Hong Kong. The real estate project located in Hong Kong is called "Kai Yue".

The article on Hejing Taifu's official WeChat official account said: "The mountains and seas are priceless. Hong Kong Kayue collects 10 billion Hong Kong Island South, a first-line coastal super landmark mansion. It is backed by green mountains, fronted by the invincible sea view of the East Boliao Strait, and has its own natural privacy barrier."

Hong Kong Kaiyue is jointly developed by Hejing Taifu and Longguang Group, each holding 50% of the shares. According to the 2022 annual report of Longguang Group, the project is located on Lei Nan Road in Ap Lei Chau, Hong Kong Island, covering an area of 11752 square meters with a total floor area of 83610 square meters.

According to the 2023 annual work conference held by Longguang Group in early January this year, the project has been completed and will be sold on site. According to public reports, Kaiyue has a total of 295 residential units, featuring 3-4 bedroom layouts, as well as products such as rooftop complexes, large flat floors, and platform gardens. On the 27th, insiders close to two real estate companies told China News Service that the current total value of the Kaiyue project exceeds HKD 30 billion.

In order to obtain this plot of land, Longguang and Hejingtaifu defeated a group of bidders in 2017, including Changshi Group. Public information shows that in February 2017, the land was sold through bidding. At that time, Longguang and Hejing Joint Venture, Emperor International and Jiaming Group Joint Venture, Henderson Land and Empire Group Joint Venture, Changshi Real Estate, CNOOC, Vanke and others participated in the bidding. In the end, Longguang and Hejing Joint Venture successfully acquired the land for about HKD 16.855 billion. According to reports, the floor price of the project is approximately HKD 22118 per square foot, with a total land price premium of 53% compared to the highest market valuation.

Longguang Group and Hejing Taifu once used Hong Kong Kaiyue as collateral to obtain a loan of HKD 10.2 billion from banks such as HSBC. However, in 2022 and 2023, the aforementioned two real estate companies have successively defaulted on their debts and are currently promoting overseas debt restructuring.

The above-mentioned insiders stated that since last year, Longguang and Hejing Taifu have actively carried out debt management, promoted the extension of overseas bonds, and included the Kaiyue project in the category of asset credit enhancement to better protect the interests of investors. At present, the redemption status of Kaiyue's syndicated bonds is normal, and the project operation is also normal.

Li Ka shing's bottom fishing in real estate?

However, the sales situation of the Kaiyue project is not ideal. It is reported that since its official opening in January this year, Kaiyue has sold three properties with a total transaction price between 164 million and 185 million Hong Kong dollars, and has recovered approximately 532 million Hong Kong dollars in cash flow. At the same time, Long Guangyuan planned to launch a foreign debt restructuring plan before March, but negotiations are still ongoing. Hejingtaifu started the overseas debt restructuring in May, and there is no further action yet.

In early June, it was reported that a syndicated creditor bank providing HKD 10.2 billion in loans to Kay Yue had contacted Changshi Group in order to recover most of the loans. According to media reports, a senior executive of Longguang Group stated that Longguang and Hejing are trying to prevent the creditor bank from selling the loan.

The aforementioned insider stated that Changshi Group intends to acquire a majority stake in the loan through negotiations between HSBC and the creditor consortium that provides the loan to Kaiyue. The person revealed that the sale of syndicated equity was driven and advocated by a few banks such as HSBC, and most banks have no plans to sell. The attitude of other syndicates has not yet been verified by China News Service.

Huang Lichong, co-founder of Xiezhong Management Group, analyzed to China News Service that if Changshi Group successfully acquires the above-mentioned debt, it means it has taken ownership of the Kaiyue project, which will be detrimental to the external debt restructuring of Longguang and Hejingtai Fujing, and may reduce the trust of overseas debt creditors.

During the restructuring of the external debt of two distressed real estate companies, as a third party, Changshi Group chose to intervene in the acquisition of related debts. Some voices believe that Changshi Group intends to seize high-quality assets of the real estate companies during the downturn of the real estate market. In July 2022, Changshi planned to acquire the headquarters of China Evergrande Hong Kong for HKD 9 billion, but the transaction was not reached. The building was purchased by Evergrande Group from Chinese Property for HKD 12.5 billion in 2015, and the price offered by Changshi is equivalent to 70% of the purchase price.

Huang Lichong analyzed that from the perspective of normal business behavior, Changshi Group's move cannot be simply described as "taking advantage of the situation". Even without Changshi Group, there will still be other companies interested in this project, or banks such as HSBC will take further action.