Min System real estate tycoon strives to climb the slope

Author | Zhou Zhiyu

Editor | Zhang Xiaoling

In the golden era of real estate, Fujian-based real estate companies are the most dazzling presence, with dark horses emerging frequently. As the real estate industry enters a new cycle, the once rapidly advancing Fujian-based real estate companies are undergoing a life-and-death transformation.

Just last week, CIFI announced that creditors can vote on the overseas restructuring plan. At the end of next month, the High Court of Hong Kong will initiate a hearing to approve its overseas debt restructuring plan. This self-rescue operation, lasting nearly 900 days, has finally welcomed a critical breakthrough.

On May 12, CIFI Holdings held a creditor briefing for the overseas debt restructuring. At the beginning, CIFI Holdings Chairman Lin Zhong apologized to investors, stating that the company had failed to manage risks well during its expansion, leading to its current predicament.

However, Lin Zhong believes that private enterprises are like resilient grass, unable to be completely burned by wildfires, and will spring back with the spring breeze.

CIFI is currently at a critical moment of climbing over obstacles. Next, CIFI needs to gradually overcome five hurdles: restoring its balance sheet, repairing its credit, cautiously expanding to recover investments, restoring profitability, and resuming dividends, becoming a breakthrough model for Fujian-based real estate companies in the new era of real estate.

Debt Resolution

Completing the restructuring of domestic and foreign credit bonds is the key prerequisite for CIFI's survival. Since initiating the overseas debt restructuring in November 2022, every step CIFI has taken has been cautious. At the beginning of last year, CIFI first disclosed its overseas debt restructuring plan, which was subsequently revised multiple times.

According to the latest plan, CIFI intends to restructure a total principal of USD 6.8 billion, including 12 senior bonds, perpetual bonds, convertible bonds, and 13 overseas loans. The framework of "short-end debt reduction, mid-end equity conversion, long-end principal protection and interest rate reduction" provides five categories of options. New notes or loan interest rates can be as low as 1.00%-2.75%, with the maximum term extended to 9 years.

CIFI Holdings CFO Yang Xin stated that under this framework, the aim is to protect the interests of creditors while providing the company with breathing space.

In the overseas plan, about 90% of creditors have signed a Restructuring Support Agreement (RSA), with options including debt-to-equity swaps, zero-interest bond exchanges, and long-term notes. The debt-to-equity swap option has no upper limit on scale, aiming to convert creditors into shareholders and bind long-term interests.

Yang Xin indicated that CIFI's current domestic and foreign credit bonds account for 70%, with the mainstream overseas option being debt-to-equity swaps, while the mainstream domestic option is debt settlement with assets. It is expected that after completing the major restructuring domestically and overseas, the scale of credit bonds will be reduced by more than 50% to within 30 billion, with the duration of existing debt extended to 9-10 years, and interest rates also lowered to a bearable level.

In addition to the 70% credit bonds, CIFI also has approximately 26 billion in remaining interest-bearing liabilities, one-third of which are operating property loans obtained through existing commercial real estate projects, while the remaining two-thirds are primarily residential project development loans. In the future debt repayment plan, most project development loans will be naturally repaid following project sales and deliveries; the remaining portion is planned to enhance asset valuation levels (LTV) by optimizing the operational efficiency of commercial projects.

Through the major restructuring domestically and overseas, CIFI's absolute value of interest-bearing liabilities will significantly decrease, with duration and interest rates showing substantial improvement; at the same time, the portion of debt reduction is expected to gradually increase CIFI's net assets Yang Xin stated that under the circumstances of mutual growth and decline, CIFI's net debt ratio will quickly return to a healthy level, helping the company to restore normal operations as soon as possible.

Yang Xin revealed that significant progress has been made in the overseas restructuring, and the domestic debt restructuring is also actively promoting the overall restructuring of the 10 billion company bonds. Moreover, a European value fund has clearly expressed its intention to fully convert its bonds, optimistic about the dual benefits of valuation recovery and industry recovery brought by the conversion.

According to financial report data, by the end of 2024, its interest-bearing debt scale will decrease to 86.6 billion yuan, compressing over 30% from its peak. By the end of 2024, CIFI's equity post-value will still reach 130 billion yuan, and the asset coverage for liabilities remains. Additionally, it holds approximately 46 billion yuan in valued property assets, contributing nearly 1.8 billion yuan in rent in 2024, an increase of about 10%. This structural characteristic provides negotiation space for debt restructuring.

If smoothly advanced, CIFI's overseas restructuring plan can also deeply bind the interests of creditors with CIFI's fate. Especially the debt-to-equity conversion option tests creditors' trust in CIFI's management and implicitly judges the bottoming out of the real estate cycle.

Rebirth

After the debt restructuring, how will CIFI stand up? The real challenge lies in how to utilize the "lightly loaded" window period to complete the transformation.

Lin Zhong stated that CIFI will resolutely abandon the "three highs" model and shift to a "low debt, light asset, high quality" development path.

CIFI's "light asset" path is already clearly visible: 46 billion yuan in commercial assets and last year's 1.8 billion yuan in rental income constitute stable cash flow; the development business is shrinking to core cities, accurately grasping structural opportunities in urban differentiation; the asset management sector benchmarks against Tishman Speyer and Blackstone, isolating risks through a dual GP model and leveraging small equity investments to drive asset operations.

To adapt to the industry reality where traditional development models are ineffective, CIFI has established five core strategies. Deep cultivation strategy focuses on effective demand and advantageous areas to increase market share; boutique strategy aims to create quality improvement products as the main direction to meet consumers' pursuit of quality living; four good strategy builds a value chain of "good houses - good services - good communities - good lives" to enhance customer satisfaction; competitive victory strategy uses the "2070 Project" (20% premium / 70% de-stocking) and "3500 Project" to reconstruct business through lean management and AI thinking, achieving full-process reengineering and supply chain reshaping; stable operation strategy prioritizes quality over speed, ensuring the stability of enterprise development.

At the same time, CIFI is comprehensively upgrading its financial risk control system. It deeply reflects on past models and concepts, establishes a stricter financial red line system, strengthens cyclical response capabilities, and ensures the company's cross-cycle development over the next thirty years.

In addition, CIFI retains the "three full" core capabilities. Full-chain empowerment, with 25 years of experience forming a standardized product system and a complete team covering the entire cycle of fundraising, investment, construction, management, and exit; full-format operation and synergy capabilities, integrating operational experience across various formats such as property, long-term rental, and commercial, forming differentiated competitiveness, with its Yongsheng Service ranking among the industry TOP 9 and Lingyu Management's scale ranking among the industry TOP 4; national network, deeply laying out in economic circles such as the Yangtze River Delta, relying on localized resources to achieve multi-format layout From surviving to standing up completely, CIFI still has many hurdles to overcome. However, although the road ahead is full of thorns, the management team of CIFI is full of fighting spirit.

Lin Zhong stated that "never say die" is his motto, and the excellent team of CIFI is his confidence. He is full of confidence in the long-term development prospects of CIFI and firmly optimistic about the investment value of the company's stock. CIFI will promote reforms with the courage to cut inward and embrace change with the spirit of a second entrepreneurship.

"The road is long and arduous, but we will surely reach our destination." Lin Zhong's concluding remarks are both a promise to creditors and a call to the industry.

Lin Zhong's statement "never say die is my motto" not only reflects the spirit of Fujian merchants but also implies the farewell to one era and the beginning of another. The final chapter of the debt restructuring has not yet been written, but it is certain that the companies that survive will be those that dare to undergo painful transformations and reconstruct their survival logic as "new species."

"Surviving" has never been the end, but rather the starting point for "standing up." CIFI's efforts to break through are a microcosm of the "phoenix nirvana" of China's real estate industry