Longfor Properties: Is another Chinese property developer collapsing?

Wu Yajun is celebrated as one of the world’s most successful self-made women, but the company she founded and chaired up until her resignation on Friday is in free-fall.

Chinese Property giant, Longfor Group is the latest Chinese property developer to spark panic amongst investors.

Longfor’s Hong Kong-listed stock has this week shed more than $2 billion in market cap as its share price plunges to its lowest level since 2017.

Meanwhile, Longfor’s bonds are collapsing too.

The company has close to $8 billion in outstanding bonds, all of which have dramatically dived in recent days, signalling extreme distress.

A 3.35% Longfor yuan denominated onshore bond due in 2024 has dived over 50% this week. While a 3.30% due 2023 has shed more than 31%, along with a 3.45% due 2023 which has also shed around the some amount.

Wu Yajun resignation triggers panic… Again

Amid the highly-publicised down-fall of China Evergrande and broader concerns about China’s property sector, Longfor was considered a relatively healthy developer.

But when founder Wu Yajun suddenly resigned from her roles as executive director and chair last Friday, investors began to question the property giant.

In an Hong Kong Exchange announcement, Longfor said Ms Wu had resigned “due to her age and health reasons” and that she had “no disagreement with the Board and there is no other matter in relation to her resignation that needs to be brought to the attention of the shareholders of the Company or the Stock Exchange.”

Wu Yajun is 58 years of age.

But that hasn’t stopped investors bailing.

A similar panic gripped the company earlier this year.

In early August, speculation surfaced on Chinese social media about Longfor’s solvency. The rumors triggered the largest single-day stock price fall (around 16 percent) ever recorded by the company on August, 10.

Wu Yajun declared the rumors had no substance and the sell off was based on “market panic”.

The same month the Chinese Government provided a guarantee on CNY1.5 billion of onshore medium-term notes issued by Longfor. The backing was part of a Government initiative aimed at stabalizing the country’s debt-plagued property sector.

Since then, Longfor Group’s share price has shed another 45 percent and is down some 77 percent since its April 2021 all-time-high.

At June 30 2022, Longfor’s net debt to equity ratio was 55.3 percent and its liabilities to asset ratio was 68.1 percent.

According to its website, Longfor has over 1000 seperate property development projects underway across China, covering 130 million square metres.

The question is, can Longfor generate sufficient cash flows from its development footprint to cover its debt, or indeed successfully complete all projects across its vast development pipeline?

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