State-owned real estate developers face a crucial juncture

Author | Cao Anxun Editor | Zhou Zhiyu Amid the continuous weak recovery in the market, SINO-OCEAN GP, once known as the "first red chip stock" and a representative of Beijing-style real estate companies, is also unable to escape, and can only brace itself for a battle that will determine the future direction. On June 28, SINO-OCEAN announced that significant progress has been made in the overall overseas debt restructuring plan, with discussions with the Overseas Bank Syndicate Coordinating Committee entering the final stages and reaching agreement on the main terms. Industry insiders have indicated that following common market practices, once the plan is finalized, the company will likely open the signing window for the Restructuring Support Agreement (RSA), providing important guarantees for the overall plan's approval. This is one of SINO-OCEAN's self-rescue measures in response to pressure from creditors and market concerns. On the day before the announcement, on June 27, SINO-OCEAN received a winding-up petition filed by the London branch of The Bank of New York Mellon in the High Court of Hong Kong, involving a total principal amount of USD 400 million in debt and accrued interest. This winding-up petition on June 28 led to a 10% drop in SINO-OCEAN's Hong Kong stock price. Although SINO-OCEAN stated that it will vigorously oppose the petition and that it will not have a substantial impact on current operations and overseas debt restructuring arrangements, the looming "sword of Damocles" undoubtedly adds pressure on SINO-OCEAN to expedite the debt restructuring process. Several investors have indicated that winding-up petitions are often used as a means for creditors to pressure real estate companies, with the aim of increasing negotiation leverage and accelerating debt restructuring. This signifies that, ten months after announcing the comprehensive overseas debt restructuring, SINO-OCEAN has entered a critical moment of rapid change. Only by completing the comprehensive overseas debt restructuring, accelerating sales, and improving operational performance before creditors and the court run out of patience, can SINO-OCEAN hope to regain the trust of creditors and the court, dispel the clouds, and safely reach shore. After three years of deep adjustments in the real estate industry, a credit storm has swept through the industry, and even state-owned enterprises like SINO-OCEAN cannot escape unscathed. This is the cruel reality of industry cycles, reflecting the tragedy faced by real estate companies. The current situation of SINO-OCEAN also indicates that the era of blindly rushing forward with eyes closed and abundant opportunities in real estate has passed, and real estate companies can no longer rely on past achievements or follow the same old path. Instead, they need to carve out their own path with their own strength. Fortunately, the industry no longer reacts with fear to debt restructuring and winding-up petitions, and creditors and investors can differentiate more rationally, placing greater emphasis on real estate companies' sincerity and determination in self-rescue. Companies that choose to remain passive and do not take action are being abandoned, while those striving to save themselves are being more accommodated. SINO-OCEAN hopes to be among the latter, relying on its own efforts to seize a lifeline in the turbulent waters of industry cycles. Managing debt risks is a top priority for SINO-OCEAN this year. In January, SINO-OCEAN's approximately RMB 18.3 billion domestic debt extension plan was approved. In its financial reports, SINO-OCEAN stated that with the gradual introduction of real estate easing measures to stimulate housing demand, it will continue to actively manage debt this year, accelerate the delivery and receipt of payments for property development projects, and improve its net debt ratio. On the other hand, SINO-OCEAN is also striving to ensure deliveries and stabilize operations, delivering approximately 18,300 residential units from January to June, and over 50 projects have been selected for the real estate financing support "white list" In addition, SINO-OCEAN is accelerating its light asset transformation, attempting to reduce its reliance on heavy asset businesses. In the first half of the year, SINO-OCEAN signed over 20 new light asset projects, involving various types such as residential, hotels, and logistics parks. The newly signed area exceeded 2 million square meters, providing construction management services to the market. Compared to other private real estate enterprises busy with self-rescue, SINO-OCEAN's unique equity structure brings additional room for imagination. This is its lucky break. SINO-OCEAN's major shareholder, China Life, extended a helping hand in June, jointly with Swire Properties, taking over the remaining equity and related debts of SINO-OCEAN's Yintai Port Phase II project in Beijing, enabling SINO-OCEAN to recover about 4 billion yuan. Prior to this, in June last year, SINO-OCEAN's two major shareholders, China Life and Everbright Life, had sent working groups to SINO-OCEAN to understand the situation. Going forward, if the major shareholders can provide more funds or endorsement support, it may help SINO-OCEAN to complete its debt restructuring earlier. Recently, industry-friendly policies have been frequently introduced, with real estate companies that are not lying flat awaiting more support in terms of delivery and financing policies. Li Yujia, Chief Researcher of the Guangdong Housing Policy Research Center, stated that the country has clearly expressed its demand for industry stability. Compared to creditors collectively demanding debts, the trend is towards a win-win outcome. If all parties of creditors can give more buffer time and space to real estate companies still in self-rescue, both sides can achieve a much better result. For the industry, as the first centrally-owned enterprise-backed real estate company to initiate overseas debt restructuring, SINO-OCEAN's fate affects market confidence. If it presents a diverse, flexible, and sincere comprehensive restructuring plan, it not only has the potential to complete debt restructuring sooner, but also signifies further control of the real estate credit storm. SINO-OCEAN already faces many examples such as Sunac, Agile, and others. Sun Hongbin, Chairman of Sunac's Board of Directors, after selling assets, introducing AMC, and even risking losing control of Sunac, held onto his position; Guo Ziwen, Chairman of Agile Group, revitalized cash flow by introducing state-owned assets and activating projects, completing domestic and foreign debt restructuring in over 600 days, and is now committed to transitioning to a "smaller and more refined" development positioning. After multiple rounds of negotiations and sacrifices, Lin Zhong, the first generation of Min-style real estate tycoons and Chairman of Xuhui, and Jihai Peng, the Chaoshan real estate tycoon and Chairman of Longfor Group, have also made progress in overseas debt restructuring this year. "As the wildfire burns out, the spring breeze brings new life." With epic new policies bringing warm winds, "miracle deals" of billions in a single day have emerged in cities like Shenzhen and Shanghai. Market recovery signals are emerging, and more and more real estate companies are expected to accelerate out of the trough, bid farewell to extensive operating models, and return to the essence of respecting market rules and creating real value in corporate operations. On that day, the industry will also be not far from spring