Yang Huiyan leads COUNTRY GARDEN to overcome challenges

Author | Zhou Zhiyu

Editor | Zhang Xiaoling

At the beginning of the new year, Yang Huiyan, Chairman of the Board of Country Garden, has been very active.

Not long after providing a restructuring plan for overseas debt, on the evening of January 14, Country Garden released its full-year report for 2023 and the interim report for 2024. The release of these two financial reports brings Country Garden closer to resuming trading on the Hong Kong stock market.

As a former "number one real estate company in the universe," the fluctuations in the industry cycle have led to a revaluation of its assets, resulting in significant losses over the past two years; however, these two financial reports show that while Country Garden is working hard to ensure the delivery of homes, having delivered over 1.7 million units in three years, it still possesses over 70 billion in net assets, ensuring its operational capability.

Moving forward, Yang Huiyan and the management team of Country Garden, who are determined to do everything possible to turn around the current predicament, will continue to lead Country Garden through challenges until it is completely back on track.

According to the expectations set by Country Garden, it is confident in reaching an agreement with overseas creditors on debt restructuring in the first half of 2025. With the support of creditors and the controlling shareholder's family, Country Garden's balance sheet will gradually recover. After that, it will also seek a new positioning in the second half of the industry and find new ways to thrive.

Whether Country Garden can find a new path will be an important observation point, providing insight into whether this industry can be revitalized and move towards the future.

Turning Point

In April last year, due to the delay in publishing its 2023 financial performance, Country Garden began to suspend trading. According to the relevant regulations of the Hong Kong Stock Exchange, if trading is suspended for 18 consecutive months, the Hong Kong Stock Exchange has the right to cancel the company's listing status.

Now, in less than nine months, Country Garden has reissued its full-year financial report for 2023 and the interim report for 2024, giving it ample time to complete the relevant processes for resuming trading. This also indirectly reflects Yang Huiyan's determination to get Country Garden back on track as soon as possible.

The two financial reports released on the evening of January 14 show, from a financial perspective, that the risks for Country Garden have been fully released, and the next step is to lighten the load and regain vitality.

The 2023 annual report shows that Country Garden's net loss attributable to shareholders was 178.4 billion yuan. Country Garden explained that this was mainly due to the large provision for inventory impairment. Among them, there are risks of unrecoverable amounts for properties under construction and completed properties held for sale, as well as certain receivables, with the net amount of financial asset and financial guarantee impairment losses totaling 119.6 billion yuan, accounting for a significant portion of the loss for the period.

During the market downturn, affected by price fluctuations, asset prices have continued to shrink, and real estate companies have made certain inventory impairments. This is a prudent treatment based on accounting principles to accurately reflect the true market value of the inventory.

Over the past three years, real estate companies including Vanke and Sunac have also made significant impairment moves. For Country Garden, which has a large amount of inventory in third-tier cities and below, the shrinkage of inventory value is also inevitable.

A positive signal is that the impact of large inventory impairments has gradually decreased in 2024. In the first half of 2024, the provision for inventory impairment for Country Garden significantly decreased to 2.7 billion yuan. This can basically be determined that Country Garden has cleared most of the inventory impairments.

Some investors have also expressed that the large impairments by Country Garden are preparing for a reversal of the current difficulties, which will benefit shareholders in the long run Indeed, due to the fair value of inventory fluctuating with market conditions and the time lag between the accounting cycle and profit settlement cycle in real estate, this impairment may be reversed in the future as the external environment gradually improves.

With the reduction of significant inventory impairments, Country Garden's losses are also expected to narrow in 2024. In the first half of 2024, Country Garden reported a net loss attributable to shareholders of RMB 12.842 billion, a substantial decrease compared to the same period in 2023. Country Garden indicated that it expects the total loss for the entire year of 2024 to significantly narrow year-on-year, with losses in the range of tens of billions.

Notably, Country Garden has worked hard over the past three years to ensure delivery. Over the past three years, approximately 1.7 million homes have been delivered, consistently ranking first in third-party lists from institutions like the China Index Academy.

Looking ahead, Country Garden still has a delivery task of 200,000 homes. The company also stated that it will actively seek government support by leveraging current favorable policies, striving to revitalize various bulk assets and idle funds, and doing everything possible to secure resources to support the delivery process.

As the peak delivery period passes, the task and pressure of "ensuring delivery" for Country Garden will decrease. After successfully completing the short-term delivery tasks, it can continue to move towards the mid-term goal of "ensuring the main body."

Breaking the Deadlock

This round of real estate adjustment has lasted for four years. During this period, real estate tycoons like Wu Yajun, Ling Ke, and Chen Qizong have retired, some have fallen into difficulties, but there are also "second-generation real estate" figures like Yang Huiyan, who took over the company from their parents and continue to fight on the front lines.

When taking over, Yang Huiyan emphasized that she always sees herself as a professional manager. The reality, however, is that the halo of the "second-generation real estate" is no longer, and she faces numerous challenges. Especially since she is at the helm of a giant ship with total assets exceeding one trillion (1.08 trillion as of June 2024), the pressure and difficulty of moving forward are much higher than those faced by other real estate companies.

How to maintain the foundation established by her predecessors? How to complete the delivery tasks with limited resources? After ensuring delivery, how to restore Country Garden's credit and lead it into the second half of the real estate industry? These challenges test the wisdom of Yang Huiyan and the management team of Country Garden.

They have made considerable efforts. Since 2022, Country Garden has raised over RMB 60 billion by disposing of public vehicles, bulk assets, and hard-to-sell commercial assets at discounted prices. At the end of last year, Country Garden sold approximately 1.56% of its stake in Changxin Technology for about RMB 2 billion, mainly for construction expenses related to ensuring delivery.

The Yang Huiyan family has also provided support in various ways.

Since 2021, the Yang Huiyan family, as the controlling shareholder, has cumulatively provided cash support equivalent to approximately HKD 9.6 billion in interest-free and unsecured loans to the company; in addition, they have provided guarantees for the issuance of RMB 1.5 billion medium-term notes by Country Garden in the interbank market.

However, with sales not yet showing significant recovery and financing channels for real estate companies blocked, Country Garden still needs to gain the understanding and support of creditors to overcome the current difficulties.

From the latest disclosed financial report, it can also be seen that as of mid-2024, Country Garden's cash flow from operating activities was -RMB 185 million, and the net cash from financing activities was -RMB 2.67 billion. It is only through the continuous sale of assets and equity that the net cash from investing activities has remained positive at RMB 2.432 billion This ongoing situation of continuous blood loss is not a long-term solution.

Optimizing COUNTRY GARDEN's balance sheet is a key step for it to emerge from its predicament. On January 9th, COUNTRY GARDEN proposed a comprehensive plan for the restructuring of its offshore debt, aiming to reduce debt by up to $11.6 billion, extend the maturity period to a maximum of 11.5 years, and lower the average borrowing cost from 6% before restructuring to 2% per year after restructuring.

Insiders have stated that COUNTRY GARDEN has received positive responses from several creditors, expressing their willingness to support the company through its current difficulties while hoping for a swift completion of the restructuring. COUNTRY GARDEN has also indicated that it has reached a consensus with a coordination committee formed by seven well-known banks, which hold loans accounting for approximately 48% of the outstanding principal.

Once the debt extension is successfully achieved, COUNTRY GARDEN will be able to lighten its load and extricate itself from the quagmire of debt, focusing its main efforts on daily operations. As a foreign institution executive specializing in debt restructuring told Wall Street Insight, reaching an agreement with creditors within a controllable timeframe is crucial for a company to be able to operate healthily after the restructuring is completed.

This will also lay the foundation for a fundamental improvement in COUNTRY GARDEN's operational status, allowing it to provide a replicable model for other distressed real estate companies to emerge from their difficulties.

Yang Huiyan is also confident that, with the joint efforts of all COUNTRY GARDEN employees, they will be able to achieve "extraordinary results."

In the longer term, real estate remains a vast market, and COUNTRY GARDEN should seek new opportunities and find its own position. Beyond real estate development, COUNTRY GARDEN continues to explore two new businesses: construction technology and property management, achieving independent market operations over the past two years. In the future, COUNTRY GARDEN will not just be a developer but a construction technology company.

The blind rush of the golden era of real estate is ultimately gone. Moving forward, any real estate company and individuals in the industry will present themselves to the world in a completely new manner. The premise is to survive. Yang Huiyan and COUNTRY GARDEN still need to continue to give their all