The fortunes of China Fortune Land Development might be running out.
Fortune has favored China Fortune Land Development (CFLD). The development giant was founded in 1998 by Wang Wenxue, a former hot pot restaurant owner. His Langfang restaurant became a favorite with local government officials who introduced Wang to the business of office renovation.
But then along came the 1998 Asian financial crisis, which almost doomed the newly formed CFLD from the very beginning, leading Wang to skip town to avoid his creditors.
Wang orchestrated his company’s survival by promising a Chinese Communist Party (CCP) boss that he would forgo receiving payment from the local government for his current contracts. That move worked in his favor as, a few months later, Beijing announced that state firms would no longer provide housing to their workers. This decision led to a boom in real estate development in China’s capital and Wang was there to reap in the profits, becoming one of the first major developers in Beijing in the process.
Since then, the fortunes of Wang and his real estate company have risen with China’s. CFLD would become known as China’s “town builder” as it went on to either develop or take part in the planning of more than 80 industrial cities across China. Wang became a billionaire and his company was soon one of the most powerful real estate developers in China.
CFLD purchased the Chinese Super League club Hebei Zhongji Football Club, promptly renaming it “Hebei China Fortune Football Club” (the name was changed to “Hebei Football Club” in 2021).
But while CFLD was 43rd in sales in 2020, its fortunes might be running out.
It was announced in early February that CFLD has US$813.37 million in overdue loans due to liquidity shortage. SCMP reports that CFLD “said it had 55.9 billion yuan of debt that had matured since the last quarter of 2020, and that it currently only has 800 million yuan in cash and cash equivalent that can be used.”
CFLD has promised to not miss payment obligations, but this increasingly appears to be a promise that will be difficult for the developer to keep. SCMP reports that “within a month, a US$530 million offshore bond will be due” and “27 billion yuan in bonds will mature between March and June, followed by another 10 billion yuan in the second half of the year.” In response, Fitch Ratings has downgraded CFLD to indicate the extremely high risk of purchasing its debt.
CFLD’s loan defaults have also been harmed. Ping An Insurance, which has a 25% stake in the company, announced that it has US$8.4 billion in exposure because of CFLD. Ping An announced that it is working with CFLD to help it repay its loans. The mayor of Langfang is also seeking government assistance for CFLD.
It is feared that China Fortune Land Development might just be the first real estate developer to have debt issues.
Reuters reports that “Chinese authorities have since 2016 sought to limit lending to the over-leveraged property sector to prevent systemic risks. Regulators outlined borrowing caps known as ‘the three red lines’ last August while the central bank in December also introduced caps on property loans granted by banks.”
This has placed pressure on real estate developers that are heavy borrowers, meaning that if the fall of China Fortune Land is imminent, it may not be the last developer to come crashing down.
It is this tight regulatory environment that contributed to CFLD’s loan problems, according to the co-chief executive officer of Ping An, Xie Yonglin.
But the regulatory environment is not the only challenge facing CFLD – another is overexpansion. CFLD embarked on a strategy that proved to be too aggressive to sustain, despite the past success of the company. Many Chinese firms that have sought to grow as fast as possible in the Chinese market have faced similar issues and startups like Luckin Coffee have fared no better.
Xie listed the COVID-19 pandemic as another reason why CFLD is struggling to pay off its loans, something that hardly makes it unique. Yet, despite the damage the pandemic inflicted on Chinese companies like CFLD and Luckin, China was the only major economy to grow in 2020.
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