China’s property crackdown has wiped out tens of billions of dollars from the fortunes of the country’s property billionaires, but one female tycoon has so far weathered the market turmoil relatively unscathed – and she’s on the way to counter volatilities and further test investor confidence with plans to list a property management unit in Hong Kong.
Wu Yajun, chairman of Hong Kong-listed property developer Longfor, now has a fortune of $15.2 billion. Compared to the 40% decline in net worth from 2021 levels suffered by Yang Huiyan of Country Garden, 70% by Hui Ka Yan of Evergrande and 73% by Sun Hongbin of Sunac, the man’s wealth of 58 years has remained largely stable. His wealth was down from $18.3 billion a year ago, but Longfor shares have gained 6% this year, while the Hang Seng index is down 13%.
Analysts attribute this to years of financial discipline and prudent management, which have helped Wu and Longfor better navigate Beijing’s campaign to lower property prices and reduce leverage in the sector. real estate. The company is the only private sector developer in China with investment grade ratings from S&P, Fitch and Moody’s. But the challenges are also increasing rapidly.
The country’s latest wave of Covid and associated lockdowns are hitting the economy, jeopardizing the government’s target of 5.5% GDP growth for 2022. Subdued homebuyer confidence, coupled with still tight liquidity for developers despite gradual easing, could cause contract sales in China to drop 10-15% this year, from 18.2 trillion yuan ($2.8 trillion) in 2021, as reported the National Bureau of Statistics, according to Moody’s Investors Service. The rating agency also expects more defaults in the property sector this year.
Still, Longfor Intelligent, the company’s property management unit, is still “on track with its Hong Kong listing plans”, according to a representative from the parent company’s investor relations department, who said declined to disclose a fundraising goal. An April Bloomberg report Longfor Intelligent said it hopes to raise up to $1 billion, in what could be the largest initial public offering in at least seven months in the Asian financial hub.
Some say Longfor has its edge. “Although the general sentiment is not very optimistic towards the property management industry, with investors worrying about the slowdown in property sales in China, the Longfor unit could receive a premium above the industry average due to stable performance growth of its parent company,” said Kenny Ng. , a Hong Kong-based securities strategist of Everbright Securities International.
The developer is targeting $45.7 billion in contract sales this year, up 3% from its $44.2 billion level in 2021, a year when its base profit also fell. grown up a better than expected 20% to $3.4 billion. But Shen Meng, director of Beijing-based boutique investment firm Chanson & Co., says lack of homebuyer confidence is now putting pressure on all property companies, and the weakness is nowhere more reflected than in the rare contractions household loans, which is an approximation of mortgage loans, in February compared to January.
“To achieve its goal, what Longfor needs now is demand for its apartments,” Shen says.
The company, however, could benefit from gaining market share from other developers, especially those struggling with cash flow, Jefferies analysts led by Stephen Cheung wrote in a March 25 research note. Everbright’s Ng says smaller developers in southern China as well as the Pearl River Delta region could be good acquisition targets for Longfor, which also derives the bulk of sales from these relatively economically advanced regions. .
Wu, meanwhile, should be cautious in executing any growth strategy, especially when it comes to funding. The company did not respond to repeated requests to interview the billionaire, who is also famous for keeping a low profile and avoiding press appearances.
According to local media, Wu worked as a reporter at a state-run newspaper after graduating from Northwestern Polytechnic University in Shaanxi province, where she studied torpedo feeding systems. She then moved into the construction industry, selling building materials before founding Longfor in her hometown of Chongqing in 1993. In 2009, she took Longfor public in Hong Kong, raising 912 million dollars after pricing the deal at the top of a marketed range.
Three years later, in 2012, Wu shave a 30% stake in the company to her ex-husband Cai Kui as part of their divorce settlement. Cai, who no longer holds any senior position at Longfor, is also a billionaire with a fortune of $8.7 billion. Their daughter Cai Xinyi, who owns 42.6% of the company after Wu transferred her stake in 2018, left the voting rights to the mother.
Wu issued a note of caution in the company’s annual report released in late April, reflecting his cautious view and stressing the need to control leverage as Longfor grows. “Maintaining a healthy balance sheet cannot be overstated, as we seek business growth under the precondition of tightly controlled leverage and funding costs,” the billionaire wrote in the chairman’s statement. .
Under Wu, Longfor is managing its growth and liquidity with some caution, according to Hong Kong-based Moody’s Investors Service senior vice president Kaven Tsang. The company has never borrowed at all levels, nor pursued scale like others – even when China’s real estate sector was experiencing double-digit growth several years ago and prompting companies like Evergrande to take advantage of funding. cheap and to expand aggressively nationwide (with over $300 billion in debt, Evergrande is now in default and has entered a lengthy debt restructuring process).
Longfor, for its part, has developed shopping centers to obtain recurring rental income and increase cash flow. In 2017, she started the apartment rental business Goyoo to take advantage of the growing needs for quality housing among the younger generation. But residential property sales still accounted for more than 90% of revenue in 2021, when the developer ranked No. 12and in terms of sales among property companies in China, according to CRIC China, a Shanghai-based industry research agency.
Now, with $13.5 billion in cash, $2.2 billion in borrowings within one year, and a relatively healthy net debt-to-equity ratio of 46.7%, he also fully complies with the country’s three red lines policy on borrowing and indebtedness limits. Last July, Hong Kong billionaire Peter Woo gave Longfor a vote of confidence in expenses 70 million HKD ($8.9 million) to acquire 1.7 million shares and increase its stake from 6.99% to 7.03%.
“This company follows its own business plans and it is not intended to be one of the biggest developers by scale,” says Moody’s Tsang, “Longfor just does business according to its own plan, its scale targeted and his financial situation. It won’t increase debt by a big margin, and he’s one of those disciplined property developers.