On October 4, Zhongjun Group Holdings Limited released insider information that the company had not paid the principal and interest due under the syndicated loan agreement signed on March 22, 2021, totaling about $61 million. The non-payment of the Loan has resulted in an event of default on the Company's offshore USD Senior Notes.
According to the announcement, in the second quarter of 2023, the sales of Zhongjun Group continued to decline, the liquidity situation became increasingly severe, and the pressure of overseas debt payment continued to increase. Even with the best efforts of Zhongjun Group, the liquid cash and bank deposits may not be sufficient to meet current and future obligations. As of the date of this announcement, Zhongjun Group has not paid the principal and interest due under the syndicated loan agreement signed on March 22, 2021, totaling about US $61 million. According
to Zhongjun Group, the non-payment of loans may lead to the Group's creditors demanding accelerated debt repayment and/or taking action in accordance with the corresponding terms of the relevant financing. As at the date of this announcement, the Group has not received any notice from overseas creditors requesting for acceleration of debt repayment.
As at the date of this announcement, Zhongjun Group continues to maintain normal business operations. Zhongjun Group said that the company will engage external consultants as soon as possible to assist the group in assessing its current capital structure and liquidity, and explore feasible comprehensive solutions to ensure the long-term development of the group and protect the interests of all stakeholders. The company plans to actively communicate with overseas creditors to win their support and understanding in order to solve the debt problem amicably.
In addition, the announcement also disclosed that Zhongjun Group will apply to the Stock Exchange to suspend the trading of the above-mentioned overseas US dollar senior notes of the Company from 9:00 on October 5, 2023 until further notice. According to the data of
Buddhist Fujian real estate enterprises
, in 1984, Huang Chaoyang, who was only 18 years old, went to Northeast China and started his business from the management of machinery spare parts. Three years later, Huang Chaoyang returned to Quanzhou and founded Zhongjun Group, initially involved in the electromechanical industry, and began to turn to real estate in 1996, developing the first commercial and residential project "Zhongjun Junda Center", earning the first barrel of gold.
Unlike the radical style of other "Fujian" housing enterprises, Zhongjun appeared to be "Buddhist" at first, and its development speed has been very steady until 2013, when it broke through the scale of 10 billion yuan.
Under Huang Chaoyang's business philosophy of "governing by doing nothing", Zhongjun prudently invested in land acquisition. From 2014 to 2016, the total construction area of Zhongjun Group's land reserve was 10.46 million square meters, 9.03 million square meters and 9.1 million square meters respectively, with a compound annual growth rate of -6.73%; the corresponding sales were 11.9 billion yuan, 14.5 billion yuan and 23.5 billion yuan respectively, with a compound annual growth rate of 40.5%. Although the development is stable, it has also missed the golden age of real estate.
In recent years, when even Vanke shouted "live" in the silver period, the real estate environment tightened as a whole, most housing enterprises cautiously took land, but Zhongjun ran in the opposite direction.
In 2017, Zhongjun suddenly put forward the sales target of "50 billion in 2018, 80 billion in 2019 and over 100 billion in 2020".
In the same year, Zhongjun announced that its headquarters was officially stationed in Shanghai Zhongjun Plaza.
Since then, Zhongjun Real Estate has started its national layout, and has successively entered Nanjing, Hangzhou, Suzhou, Qingdao, Jinan, Foshan, Huizhou, Zhenjiang and other cities.
In recent years, Zhongjun Group has changed its radical expansion into 100 billion yuan, and the sequelae of the group's high debt, declining profitability and deteriorating liquidity have gradually been exposed.
It is noteworthy that in recent years, when Zhongjun Group advocated expansion, it was Huang Chaoyang's eldest son, Huang Lun, who entered the management. After graduating from the University of Warwick in the United Kingdom, Huang Lun joined the group as the general manager of the commercial real estate management company, responsible for the group's commercial real estate management. In February 2017, he was promoted to the assistant president of Zhongjun Group, responsible for financial investment. In March 2017, he was appointed as the executive director of Zhongjun Group. The
ratings were downgraded
by Moody's, the rating agency, before the previous public default.
On September 15, Moody's downgraded the company family rating of Zhongjun Group Holdings Limited from "B3" to "Caa1" and the company's senior unsecured rating from "Caa1" to "Caa2". The outlook remains negative.
The downgrade reflects that the refinancing risk of Zhongjun Group Holdings continues to increase due to weakening liquidity, limited financing channels and a large number of debt maturities in the next six to 12 months.
At the same time, the negative outlook reflects uncertainty about the company's ability to raise new funds through new loans or asset disposals to meet its refinancing needs and replenish its balance sheet liquidity over the next six to 12 months.
Moody's estimated that the company's total cash at the end of June 2023 was 12.4 billion yuan, which, together with operating cash flow, was not enough to cover all the debts due in the next six to 12 months.
Moody's said that due to the uncertainty of the recovery prospects of China's real estate market and the rising risk aversion of buyers to private real estate developers with poor financial conditions, the contract sales of Zhongjun Group Holdings in 2023 will fall by about 40% to 35 billion yuan year on year. In 2024, it will further drop by 20% to about 28 billion yuan. In the first eight months of 2023, the contract sales of Zhongjun Group Holdings fell 43% year-on-year to 23.6 billion yuan.
In addition, Moody's predicts that the credit indicators of Zhongjun Group Holdings will remain weak in the next 12 to 18 months due to low revenue recognition and low gross profit margin caused by low sales performance.
In particular, the debt leverage of Zhongjun Group Holdings (measured by debt/EBITDA) will remain at 14-16 times in the next 12-18 months, compared with 22 times in the 12 months to June 2023. Similarly, its interest solvency, as measured by EBIT interest coverage, will remain around 1.0x, compared to 0.6x over the same period.
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