- Jiayuan International (“Jiayuan”) (Stock Code: 2768.HK) shares plunged 41% in one day on 18 May. The sharp decline was mainly caused by the forced sale of around 1.348 million shares of Jiayuan held by Mingyuan Group Investment Limited, which is controlled by Shum Tin Ching, the major shareholder of Jiayuan. On 27 May, another 310 shares of Jiayuan were forced to be sold again by Mingyuan Group Investment Limited.
- In April, the company failed to repay two USD bond coupon payments, and entered into a 30-day grace period for these two bonds. However, the company successfully made two coupon payments on 18 May and 2 June (before the deadline of the grace period) to avoid defaulting on the bonds.
- On 26 May, the company announced that it was “currently arranging for the remittance of the necessary funds” to repay the USD 12 million bond coupon, which has investors’ confidence. However, as the bondholders did not received the interest payment by the end of May, the company was suspected to be “lying flat” or even defaulted. Nevertheless, things took a turn for the worse again, as Jiayuan eventually managed to repay the coupon on 2 June.
- Besides, the company received two winding-up petition filed by creditors in the High Court of Hong Kong related to a HKD 15 million debt dispute.
- In terms of the company’s operation, the company has recently made a few moves. From January to April this year, the company’s total contracted sales were around RMB 5.41 billion, decreased by 43% YoY, slightly lower than the peers’ average. The company intends to sell its 73.6% stake in Jiayuan Services to Jinke Services. Although neither parties disclosed the price on intentions, based on the current market value of Jiayuan Services, if all shares are sold, the company can only collect around HKD 500 million.
- Fitch reported that Jiayuan is trying to pledge two investment projects in Hefei and Yangzhou respectively in exchange for liquidity. But at this stage, the company has only reached partial agreement with relevant investors of the Hefei project, which carries a certain degree of execution risk.
- In addition, the company sold a property project to Jiaxing Yuetai Property with the total consideration of RMB 879 million. The proceeds will be used for general operating purposes and repayment of debts. On 1 June, the company established a memorandum of cooperation with China Cinda (Hong Kong) Asset Management Corporation (“Cinda HK”), supporting the company on corporate relief and liquidity.
- Since year to date, the company has timely repaid two USD bonds due in March and May, with principal amounts of USD 322.5 million and USD 250 million respectively. Amongst these, in April, the company repurchased a large amount of the May USD bond at a discount on the secondary market, with the total repurchased principal amount representing around 93% of the outstanding bond. Compared to other Chinese developers, which many of them either already went into defaults or offered extension proposal to bondholders during the first half of the year, Jiayuan’s efforts on turning the situation around were eye-catching to the market.
- About company’s financials, as of the end of last year, the company had total debts of around RMB 22.9 billion, including short-term debt of around RMB 6.5 billion. The net gearing ratio was 54%. The company’s total cash on book was around RMB 9.5 billion with an unrestricted cash to short-term debt of 1.4 times. However, the level of free cash available at the parent company level is unclear.
- The company’s timely announced its 2021 audited result with PwC, who has resigned from a number of Chinese developers but not from Jiayuan, as their auditors. In addition, no “material uncertainty relating to going concern” opinion was issued by the auditor. Considering the above factors, the company’s financials should be credible to certain extent.
- According to Fitch's estimation, the cash available at the company's group level is marginally sufficient to repay the USD 200 million bond due in October this year. However, with reference to E-House as an example, even if the company barely has sufficient funds on book to repay the bonds, the company's management might still choose to seek maturity extension for the bonds in order to preserve their financial resources. Therefore, whether Jiayuan can repay the USD bond due in October this year might depend on the willingness of the company and its major shareholders.
- Despite the difficulty in measuring the willingness to repay of the company and its major shareholder, investors can pay attention to the company’s future development, including the handling of the USD 200 million principal due in October, as well as the cooperation direction with Cinda HK.
- The current bond prices of Jiayuan are at around $13 to $28, which should factor in the high default risk. It might be better for bondholders to wait for future updates from the company. Moreover, the company might take advantage of bond repurchases to repay the bond due in October this year at a lower cost. As such, there is large room for the bond prices to rebound, which is more suitable for investors who can bear high risks.
Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.t holds a NIL position in the abovementioned securities.
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