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How good is AMC's entry into the market for real estate bail-out?

Date: 2022-03-23
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After a symposium, three of the top five national asset management companies (AMC) have made moves. After two senior executives of China Cinda settled in Evergrande Risk Mitigation Committee and China Orient issued 10 billion yuan of bonds, on March 16th, the Great Wall of China issued 10 billion yuan of financial bonds, which were used for real estate risk mitigation.

On the same day, a new signal was released at the market level: the financing amount of real estate M&A in various channels that are not included in the 'three red lines' has exceeded 150 billion yuan. In the past, the hidden dangers of blind mergers and acquisitions for real estate developers still exist, the fundamentals of the industry have not recovered, and the scale expansion of high-credit housing enterprises has tended to be rational and cautious.

Lack of experience in clarifying complex debt relationships, difficulty in negotiating creditor settlement, low auction price in the open market and other factors, high-credit state-owned property developers will not easily acquire mergers and acquisitions. Six days ago, Lin Zhaoyuan, chairman of Yuexiu Real Estate, hit the key point: 'Money is not a problem, but the focus is on the quality of M&A targets'.

It is not difficult to see that, at present, it seems that the 'M&A tide' is gaining momentum, but in fact, most of the money-holding institutions are on the sidelines, and 'front-line troops' are needed to enter the market for accurate bomb disposal. Under such circumstances, it is undoubtedly necessary for AMC to enter the market to participate in the real estate debt. However, unlike the previous undertaking of disposal of non-performing assets, this AMC approach focuses on project mergers and acquisitions and related financial intermediary services, which means moving the risk asset disposal gate forward to achieve the following functions:

First, after AMC enters the market, it can inject new funds. Judging from the operation path and past experience in disposing of non-performing assets, AMC disposed of risky assets in the role of financial consultant, and the process of debt liquidation was slow. As an investor, because of his own little experience in real estate management, it is less likely to buy real estate enterprises directly, and it is more likely to buy real estate enterprises' debts and risky assets from financial institutions.

In addition to its own funds, the funds needed for debt acquisition may also need policy support, that is, AMC issues financial bonds as seen at present, or participates with industrial capital according to the principle of marketization, which has expanded the funding channels for the real estate industry. Having 'new grain' in hand can speed up the disposal of risky assets.

Second, the introduction of AMC will help stabilize asset prices. There may be two kinds of reasons behind the current 'M&A tide' of real estate: First, the transactions between real estate enterprises, the buyer's right to speak is high, and the assets of dangerous real estate enterprises are sold at 40% discount, which makes the asset price deviate from the fair value, and the consequence may be insolvency; Second, in the past, some real estate developers used such means as explicit shares and real debts to whitewash statements, resulting in complicated relationship between creditor's rights and debts of risky assets, great disputes among many creditors and inconsistent demands, which made it difficult for buyers to coordinate with each other.

After entering the market, AMC can become a single friendly creditor. Under the idea of 'disposal first, supplemented by meager profit', it can stabilize asset prices, negotiate creditors' discounts, break the deadlock of M&A and play the role of a stabilizer.

Third, after AMC's participation, it will help to speed up the liquidity of risk projects and ensure the stable sales of the building. AMC has rich experience in dealing with non-performing assets. After acquiring debt and risky assets, it can integrate various financial resources and inject funds by virtue of its own financial license. Then, look for high-credit housing enterprises or construction enterprises to cooperate, so that unfinished projects of insurance housing enterprises can complete the follow-up development, and even a variety of formats can be included in the acquisition asset package to cut off the association with insurance housing enterprises.

In short, AMC can better coordinate upstream and downstream resources, buyers and sellers and government resources, speed up the release of liquidity of projects, guarantee delivery and stabilize residents' confidence in buying houses.

Resolving the risks in the real estate industry is a systematic project. Next, AMC's participation may be deeper. Banks and trust assets insurance all have disposal ability, and M&A loans issued by high-credit housing enterprises can also revitalize risky assets. But more importantly, it is necessary to keep the supply-side adjustment and demand-side adjustment fit, guide real estate funds into a virtuous circle, win time and space for the whole industry to bail out, and let real estate play an active role in stabilizing the macro-economic market.


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