ChaoShan real estate tycoon takes on another life-or-death challenge

Image: LOGAN GROUP Chairman Ji Haipeng

Author: Cao Anxun

Editor: Zhou Zhiyu

After 17 months, LOGAN GROUP's debt restructuring has taken a crucial step, and Ji Haipeng, the chairman of LOGAN GROUP and a real estate tycoon in Chaoshan, has also come to a "life and death moment."

On January 12th, LOGAN GROUP announced that it had reached an agreement with 51% of its US dollar bondholders and obtained their support.

Ji Haipeng plans to restructure approximately $8 billion in debt through debt reduction and extension, with a debt reduction of $2.6 billion to $3 billion. In the national real estate industry, this is a large-scale restructuring.

To achieve this, Ji Haipeng is willing to lend real money to the listed company and promise to pay the consent fee to the bondholders.

Next, if Ji Haipeng can win more support from bondholders, with a support rate exceeding 75%, then LOGAN GROUP may be able to survive this crisis.

Ji Haipeng and his LOGAN GROUP, who came from Shantou to Shenzhen, are representatives of the golden age of real estate. Behind the labels of "a hundred billion dark horse" and "land king maker" is the fiery golden age of real estate, with repeated bidding, the sound of hammers falling, and cheers, which have made this real estate company successful.

However, times have changed. As a member of the troubled real estate companies, even if the debt restructuring is successful, Ji Haipeng needs to put more effort into company operations and internal governance in order to truly succeed.

Restructuring

In August 2022, LOGAN GROUP announced a default on its US dollar bonds. Ji Haipeng quickly led the establishment of a special debt restructuring group, promising not to lie flat or escape from debt.

By the end of 2022, LOGAN GROUP had completed the restructuring of RMB 22.3 billion in domestic debt, becoming the second real estate company after Evergrande to achieve a domestic debt extension.

However, in terms of overseas debt restructuring, although LOGAN GROUP has had multiple rounds of communication with overseas bondholders, there has been little progress.

With the successful debt restructuring of Rongchuang's RMB 90 billion at the end of last year, other troubled real estate companies in the industry have also found a solution.

Similar to Sun Hongbin, Ji Haipeng has also provided a package solution to LOGAN GROUP's bondholders, divided into debt reduction and extension. Debt reduction is mainly done through mandatory convertible bonds, with a small portion being repaid in cash.

Some of the debt involves extensions, and LOGAN GROUP will issue long-term notes with a maturity of 6 years and 9 years for exchange.

In the end, LOGAN GROUP plans to reduce its debt by $2.6 billion to $3 billion.

Compared to the debt reduction ratios of other real estate companies, which are close to halving, LOGAN GROUP's debt reduction ratio is about 30%, which is not too harsh and has gained recognition from many bondholders. LOGAN GROUP has stated that short, medium, and long-term debt instruments can meet the interests of different types of creditors and provide sufficient flexibility.

In order to quickly gain sufficient support from creditors, Ji Haipeng is even willing to lose absolute control.

According to estimates by Wall Street News, in the worst-case scenario, the Ji Haipeng family's shareholding in LOGAN GROUP could be diluted from the current 75.08% to below 51%, resulting in a loss of absolute control.

Ji Haipeng has also shown sincerity by providing a total of approximately USD 1.346 billion in shareholder loans to LOGAN GROUP. Of this amount, USD 400 million will participate in the debt reduction plan of the restructuring, while the rest will be converted into long-term notes with an annual interest rate of 2%, which will mature in the 9th and 10th years. This interest rate is much lower than the face interest rate of the restructuring plan, demonstrating Ji Haipeng's concession.

Furthermore, Ji Haipeng will also pay a consent fee of 0.2% to creditors who agree to the plan before March 28, 2024, and will use all of LOGAN GROUP's overseas assets to enhance confidence in the overseas debt restructuring.

Next comes Ji Haipeng's "life or death moment". Only by increasing the support rate of overseas debt creditors from 51% to 75% can LOGAN GROUP hope to escape the quagmire of debt and create a new future.

According to the debt restructuring rules of listed companies on the Hong Kong Stock Exchange, a debt restructuring plan can only be successful if more than 75% of creditors agree. This is also a key indicator for Rongchuang, Aoyuan, and Zhongliang.

It can be expected that a glimmer of hope is emerging for Ji Haipeng. Some institutional insiders believe that the remaining (non-voting) creditors of LOGAN GROUP will also waver. LOGAN GROUP's overseas debt restructuring plan may receive more support from creditors.

Previously, Citigroup had submitted a winding-up application against LOGAN GROUP and its two wholly-owned subsidiaries, but it is now planning to withdraw the winding-up application.

Investors have also responded positively. On the resumption day (January 15th) after the announcement of the new progress in LOGAN GROUP's overseas debt restructuring, LOGAN GROUP's stock price opened significantly higher and rose 5% at the close.

The Road Ahead

From the tycoon behind the "land king-making machine" to the "survivor" struggling to stay afloat, Ji Haipeng's experience reflects the cruel changes in the real estate industry.

Ji Haipeng is a representative figure of Guangdong-based real estate companies, low-key and mysterious, rarely appearing in public. But he strategizes and acts decisively, allowing him to reap the benefits of the Shenzhen property market and accumulate considerable wealth, once being the richest person in Shantou.

In the national market, LOGAN GROUP, known for acquiring land at high prices and building luxury homes, has also gained a considerable reputation. In its peak year (2021), LOGAN GROUP achieved a total sales revenue of CNY 167.1 billion, ranking 23rd on the CRIC sales list.

However, as the saying goes, what goes up must come down. After the industry began to undergo a deep adjustment, LOGAN GROUP's high leverage collided with the "three red lines," and the debt crisis emerged in 2022. However, Ji Haipeng has never given up and has become an exemplary figure in the industry's efforts to save itself.

Next, Ji Haipeng cannot relax. In addition to actively promoting overseas debt restructuring, it is also urgent to boost sales and improve operational performance. In 2023, LOGAN GROUP achieved a total sales revenue of 23.07 billion yuan, ranking 61st on the KraneShares sales list.

The weak recovery in the property market is affecting the speed of Ji Haipeng's asset disposal. A plot of land in Shenzhen's Nanshan District, which LOGAN GROUP acquired at a high price in 2021 for 6.9 billion yuan, failed to sell at the end of last year.

Fortunately, LOGAN GROUP still has a considerable amount of valuable assets. According to LOGAN GROUP's announcement, as of the end of 2022, LOGAN GROUP has 188 property development projects, with over 85% of the value concentrated in first-tier and second-tier cities.

In addition, LOGAN GROUP holds 51 investment properties, including shopping centers and office buildings. Among them, 40 investment properties have been completed, and 11 are still under development.

Ji Haipeng expects that during the overseas debt restructuring period, LOGAN GROUP is expected to achieve sales revenue of approximately 65-75 billion US dollars through development and urban renewal projects, and the total cash available for repaying overseas debt is approximately 4-4.7 billion US dollars.

The goal of debt restructuring is to bring the company's operations back on track and generate positive cash flow. This is the fundamental reason why creditors are willing to support real estate companies. As a typical family business, Ji Haipeng also needs to make more changes to the past business model.

The China Index Research Institute also pointed out in its report that since the third quarter of 2023, the progress of debt restructuring in real estate companies has accelerated, which has to some extent boosted industry confidence. If troubled real estate companies can effectively restore normal operations and stabilize sales cash flow, it will further promote risk clearance in the real estate industry.

However, after the "darkness before dawn," it may be difficult to see LOGAN GROUP acquiring land at high prices in the future. For a visible period of time, Ji Haipeng and LOGAN GROUP need to focus their energy on ensuring delivery and restoring the company's operational capabilities.

The era of high leverage, fierce competition, and high premiums for land acquisition has long gone.