What are the real estate enterprises that have stepped on three red lines?
According to the "three red lines" of real estate enterprises and the financial stability rating of real estate enterprises released in June 2022, there are currently six real estate enterprises stepping on three red lines, as follows.
1 Evergrande Real Estate Group Co., Ltd.
2 Greenland Holding Group Co., Ltd
3 Guangming Real Estate Group Co., Ltd.
4 Huayuan Real Estate Co., Ltd.
5 Yunnan Chengtou Real Estate Co., Ltd.
6 Jiakaicheng Group Co., Ltd.
The three red line standards are that the asset-liability ratio does not exceed 70%, the net debt ratio does not exceed 100%, and the short-term cash debt ratio after deducting the advance payment is greater than 1. According to the different contact conditions, it is divided into four grades: red, orange, yellow and green, and the corresponding annual growth rate of interest-bearing liabilities is 0%, 5%, 10% and 15% respectively.
In June 2022, the "three red lines" of housing enterprises stepped on the line, and the financial stability of each housing enterprise was rated.
(Source: China Real Estate Data Research Institute)
In the process of real estate development, financing involves the acquisition, development and sale of land. However, because the development is to get the pre-sale money in advance, the withdrawal of funds will reduce the leverage, and the sales link is the process of transferring leverage from enterprises to residents.
Therefore, in the past, the rapid expansion of the scale of real estate enterprises was to constantly increase leverage to take land for development, and then use the auction model to get the advance payment, and then use the money to continue to take land for development, snowballing and growing, which can quickly make the enterprise bigger, but it is very risky.
On the one hand, if one project or several projects have problems, it will cause a lot of project crises. On the other hand, the debt ratio of housing enterprises is too high. Once there is a problem in the capital chain, the problem will break out quickly. If we don't control it now, the danger will be greater in the future.
In short, the free cash flow of "three red lines" housing enterprises will decline in the short term. Because the growth of operating cash flow will weaken, the capital expenditure of debt repayment will rise, and enterprises can no longer expand as fast as before. In the long run, the free cash flow of enterprises may be improved, because the leverage ratio of enterprises will be reduced and the capital expenditure will be reduced, so the money distributed to shareholders will increase.