Country Garden ＂tightens its belt＂

Radar Financial Products | Xiao Sa | Deep Sea

Country Garden spared no effort to save the company. This time, the executives collectively reduced their salaries.

On December 12th, Country Garden announced that the annual salary of four directors, Yang Huiyan, Mo Bin, Yang Ziying and Chen Tai, had all dropped to 120,000 yuan, that is, the monthly salary was 10,000 yuan. Among them, the biggest decline is in Mo Bin, whose annual salary before adjustment is 3 million yuan.

According to media reports, at present, Country Garden has cancelled all car allocation for senior executives according to the principle of zero administrative expenses, including reimbursement for senior executives’ medical examination and free canteens for senior executives.

Earlier, Country Garden also released the news that Yang Guoqiang was selling airplanes, and it lent 300 million dollars of interest-free loans to listed companies out of its own pocket. Recently, Yang Huiyan even said that the family, as the controlling shareholder, would "support the company by selling iron in a big pot".

When the company is in turmoil, from the founder’s family to the management, Country Garden strives to send positive signals to the market and investors. Judging from the public information, Country Garden’s overseas debt restructuring has not made substantial progress, and RMB debt is also on the verge of default.

Therefore, although Country Garden does not lack positive self-help attitude and measures, compared with the huge debt scale of the company, the actual effect of these actions remains to be seen. If we refer to the cases of other real estate enterprises in danger, as long as the debt crisis has not been completely lifted, Country Garden’s difficulties are not in the past.

Mo Bin has fallen from an annual salary of 235 million to a monthly salary of 10,000

On December 12th, Country Garden announced voluntarily that, in combination with the actual business needs of the industry and the company, executive directors Yang Huiyan, Mo Bin, Yang Ziying and non-executive director Chen Nai of the company offered to reduce their salaries, and signed a supplementary agreement on directors’ services and a supplementary letter of appointment on November 1st, 2023, adjusting the annual salary of directors from 370,000 yuan, 3,000,000 yuan, 2,000 yuan and 370,000 yuan to 120,000 yuan respectively.

The adjustment was approved by the board of directors of the company on the date of this announcement and will take effect on November 1, 2023.

In the past, high-level housing enterprises have always been known for their high salaries, and Country Garden is no exception. Straight flush iFinD data shows that by the end of 2021, the remuneration of Yang Guoqiang, co-chairman and executive director of Country Garden, was RMB 29,054,900, that of Yang Huiyan, co-chairman and executive director was RMB 19,301,800, that of Mo Bin, executive director and president was RMB 235 million, and that of the other four executive directors was between RMB 20 million and RMB 60 million.

In 2022, the salary of Country Garden management declined, but the highest salary was still 10 million yuan. In September last year, the annual salaries of Mo Bin and Yang Ziying were reduced from 15 million yuan and 10 million yuan respectively to 3 million yuan and 2 million yuan.

On the whole, after this adjustment, Mo Bin, the president, has the biggest decline, from the annual salary of one million last year to the current 120,000 yuan.

In addition, Country Garden’s daily administrative expenses have also begun to tighten. According to media reports, at present, the company has cancelled all senior executives’ car allocation, and when there is a real need for work, it can achieve intensive vehicle cost control and cost reduction by applying for official car allocation or using its own car.

For all group buses, including the former senior executives’ car allocation, assets will be revitalized through internal public bidding and foreign workers’ debt repayment. In addition, including the reimbursement of senior executives’ medical examinations and the free canteen for senior executives, etc. have also been cancelled.

Country Garden said that the administrative expenses of the whole group are based on the principle of zero, and they are not necessary to be spent. Rigid expenditures are reduced as much as possible through integration and intensification, and in 2023, they will be significantly reduced by nearly 60% compared with 2021.

At present, Yang Huiyan is at the helm of Country Garden. On March 1st this year, Yang Guoqiang announced his retirement, and Yang Huiyan officially took over the post of chairman of the board of directors from his father.

Five months after taking over the baton, Country Garden defaulted on two US dollar debts, officially declaring itself out of danger, and the cloud approached "the first real estate enterprise in the universe". For a while, the market "small essays" flew around, and it was rumored that "the father and daughter of the founder of Country Garden may have left the country". Country Garden had to publicly refute the rumor, and Yang Guoqiang made several appearances.

Subsequently, Country Garden embarked on the road of self-help. At the group executive meeting held on October 9, Mo Bin, president of Country Garden, revealed that the Yang family was selling its private jet; Another insider of Country Garden confirmed that Yang Guoqiang’s Yang family had provided Country Garden with an interest-free loan of $300 million.

In December, Yang Huiyan released the signal of self-help before going on stage for many times. On December 8, Country Garden Group held a monthly management meeting. Yang Huiyan, Chairman of the Board of Directors of the Group, pointed out that "the family will definitely sell iron to support the company, and the company will strive to explore an effective path to resume normal operations as soon as possible."

Country Garden revealed that Yang Huiyan’s family, as the controlling shareholder, fully provided financial support for the company. Up to now, the total amount of support has been about HK$ 41 billion by borrowing money, increasing shares, buying bonds and paying interest by shares, and they have never reduced their shares.

However, with the stock price falling, the wealth of the Yang Huiyan family has shrunk dramatically. On November 14th, Hurun Research Institute released Hurun Women Entrepreneurs List in 2023, and Yang Huiyan’s wealth shrank by 27 billion yuan, ranking fifth with 48 billion yuan.

Make major adjustments to ensure delivery

In the face of unprecedented difficulties, Country Garden needs more self-help actions.

On December 5th, Country Garden made a new round of organizational restructuring, merging 14 regional companies into 7 new regions. After the merger, the total number of regions in Country Garden was reduced from 28 to 21.

A person close to Country Garden said that through regional contraction and merger, the resources invested in projects with poor performance can be recovered, which can play a role in reducing costs, and these freed resources can be concentrated for the delivery of buildings.

Radar Finance noted that Country Garden had previously adopted the strategy of "occupying the third and fourth lines, firmly sinking the fifth and sixth lines, and carefully laying out the first and second lines".

Because the project is spread over more than 30 provinces and cities, Country Garden has split the region. In May 2020, Country Garden split some areas, and the number of areas under its jurisdiction increased from 47 to 73. In October of that year, Country Garden once again split 73 areas into 104.

At the performance meeting the following year, President Mo Bin said that in 2020, Country Garden combined the capacity of the external market, the internal control radius and the regional operation ability, and split the region according to local conditions, "achieving no increase in costs and more effective control".

However, in the second half of the year, Country Garden has begun to organize "slimming". By the end of 2021, the company made major adjustments to its 106 regional companies and merged them into 65.

Since the beginning of this year, Country Garden has repeatedly attacked the organization. At the beginning of March, Country Garden reduced the number of regions to 29 according to the principle of "excellent regional presidents manage regions".

At the end of May, the company adjusted its formation again, and set up two major industrial groups, namely, real estate, science and technology construction, and new business and innovation investment division, under Country Garden Holdings.

Country Garden said that this adjustment is mainly to implement the previously proposed "one body and two wings" development strategy (with traditional real estate as the main body, entrusted agent construction and technology construction as the two wings), in order to reduce the impact on business units.

Some analysts pointed out that the core of Country Garden’s frequent organizational integration is to reduce human resources expenditure. This also means that layoffs are inevitable.

According to the data of the semi-annual report, in the first half of 2023, the number of employees in Country Garden decreased from 69,932 to 58,140, and nearly 11,800 employees were lost at once.

In addition, it is also very important for Country Garden to return to normal operation by avoiding project shutdown, promoting normal delivery of the project and realizing sales. Recently, Yang Huiyan said that the company will have three main tasks in the next 12 months: ensuring delivery, ensuring operation and ensuring credit.

According to statistics, Country Garden Group has delivered about 500,000 houses in the first 11 months of this year. In 2024, Country Garden is expected to deliver more than 400,000 sets.

Considering the deteriorating refinancing environment, sales return is the real "hematopoietic" way for real estate enterprises.

However, the current sales situation of Country Garden is still not optimistic. From January to November 2023, the cumulative sales of Country Garden was 212.45 billion yuan, down 52% year-on-year.

In the past October-November, the sales of Country Garden were only 6.31 billion yuan and 6.11 billion yuan.

The debt problem has not been completely solved.

It is not difficult for Country Garden to "tighten one’s belt". What is difficult is how to solve the thorny debt problem.

Judging from the overall debt scale, as of the end of June this year, Country Garden had total assets of about 1.62 trillion yuan, total liabilities of about 1.36 trillion yuan and net assets of about 0.26 trillion yuan.

Among the total liabilities of 1.36 trillion yuan, the balance of contractual liabilities is 603.6 billion yuan, which belongs to the advance payment of the house and does not need to be repaid in cash. At that time, the house can be carried forward as income after delivery. In addition, the balance of the company’s total interest-bearing liabilities in the same period was 257.91 billion yuan, of which the debts due within 12 months were 108.703 billion yuan.

In terms of cash reserves, as of the first half of 2023, Country Garden had a total cash balance of about 130.569 billion yuan, a year-on-year decrease of 16.981 billion yuan, of which cash and cash equivalents were about 101.115 billion yuan and restricted cash was about 29.454 billion yuan.

However, in some cases, the amount of cash on the books of real estate enterprises cannot represent all. Fitch previously pointed out that the restriction of local governments on pre-sale supervision funds at the project level weakened the substitutability of real estate enterprises to use cash to repay debts other than real estate project companies. In addition, there are other financial treaties that prohibit the withdrawal and use of project-level funds.

Therefore, Country Garden, which has a liquidity of 100 billion yuan, suddenly announced on October 10 that as of the date of this announcement, the company had not paid the due amount of HK$ 470 million in a certain debt.

The announcement pointed out that the company also expects that it will not be able to fulfill all its overseas debt repayment obligations as scheduled or within the relevant grace period, including but not limited to the repayment obligations under the US dollar bonds issued by the company.

In the announcement, Country Garden said that it had hired consultants to help assess its capital structure and liquidity and formulate an overall solution.

This move also means that Country Garden officially announced the start of overseas debt restructuring. Now that two months have passed, Country Garden has not further disclosed the progress of overseas debt restructuring.

According to statistics, there are 15 public US dollar bonds in Country Garden, and the surviving principal is about 9.3 billion US dollars.

In terms of domestic debt, according to Country Garden, as of October 10, its nine domestic debt extension plans with a total principal of 14.7 billion yuan have been approved by bondholders, and the maturity time has been extended by three years as a whole.

However, this is not the whole of the company’s domestic bonds. December 13th is the interest payment date and resale exercise date of the bond "22 Bidi 02" in Country Garden.

36Kr learned that Country Garden has paid the coupon interest to investors for the past year, and successfully persuaded most investors not to exercise their resale rights. This marks that the company has avoided the first substantial default of domestic debt.

Liu Chunsheng, an associate professor at the Central University of Finance and Economics, thinks that compared with Country Garden’s debt, the management has made a drop in the bucket, but the attitude is correct. He pointed out that Country Garden’s biggest problem at present is how to solve the debt problem and the survival problem of enterprises through debt restructuring, asset restructuring, asset sale and introducing strategic investment.

The debt crisis has always been the biggest risk facing Country Garden. How to spend the darkest moment at the moment tests Yang’s father and daughter.