CIFI Holdings (Group) Co. Ltd. (884) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to CIFI Holdings Creditors open call. As many of you already know, CIFI has received a convening order from Hong Kong Court on the 23rd of April. In accordance with this order, the company has scheduled to hold a Scheme Meeting on the 3rd of June. The purpose of today's meeting is to update you on the current business operations of the company as well as to discuss the overview of the offshore restructuring efforts to facilitate your voting. Before the meeting, we collected the questions that our creditors are particularly concerned about, and these will be covered in the management's speech. This meeting will be conducted in both Chinese and English. On behalf of the company, we will first have Mr. Lin Zhong, the Chairman of the Board of Directors, who will share his vision and plans for the company's future. followed by Mr. Yang Xin, our CFO, who will give you a comprehensive overview of the company's current financial and operational status. Finally, we will welcome Mr. [indiscernible], who is leading our offshore restructuring process to provide an update on the restructuring proposal and the time line. Now without further delay, let's welcome Chairman, Lin Zhong.

[Interpreted] Good afternoon, everyone. I am Lin Zhong, the Chairman of CIFI Holdings. First, I would like to express my sincere gratitude to all of you for attending this meeting. As the leader of the company, I deeply regret that during our rapid expansion, I failed to adequately manage risks, which led the company into difficulties and adversely affected our trusted partners. On behalf of the Board of Directors, I extend my sincere apologies. Throughout the 900 days of offshore debt restructuring, we fully recognize that the repeated amendments to the restructuring plan have caused significant inconvenience. However, during the most challenging time, both parties engaged in constructive dialogue, continuously showing goodwill that finally led to this consensus. While the industry is still undergoing adjustment, it is your professional work that has enabled to stabilize its core operation [indiscernible]. We will always remember their trust and goodwill. Today, I would like to take this opportunity to share with you why I have always believed CIFI has survived and stand back up on its feet and what makes CIFI different from other private owned developers. First, what makes CIFI to survive include one prerequisite, four pillars and one foundation. One, prerequisite, the completion of onshore and offshore debt restructuring is a crucial prerequisite, which can significantly improve our capital structure and balance sheet. As one of the few private developers that still have tens of billions of RMB in attributable net assets prerestructuring, CIFI will retain sufficient net assets through debt restructuring, avoid insolvency risk and lays a solid foundation for future. The first pillar, during the difficult past 3 years, we retained most of our core teams whose dedication enabled high-quality delivery of 270,000 [indiscernible] widely recognized by investors during their onsite trips. I deeply appreciate it. The second pillar, over the past few years, facing the dual challenges of construction cost repayment and sales slowdown, CIFI has kept its competitive edges and the projects delivered won multiple quality awards. Third pillar, as a leading private owned developers, CIFI has always taken an active attitude towards [indiscernible] leveraging full-scale capabilities, we have stabilized [indiscernible] and fourth pillar, the enduring culture cultivated through years of [indiscernible] tracking has shaped CIFI's people with resilience. We find hope and perseverance, stand on building and embrace hardship. For CIFI, we are now conquering another [indiscernible] challenge. The Foundation [indiscernible] buyers with 270,000, high quality residential properties delivered in the past 3 years, CIFI ranked #8 countrywide. High quality [indiscernible] cornerstone for our [indiscernible]. We are phasing out unsustainable 3 highs, high leverage, high turnover, high debt model. Instead, we shift to the sustainable model of low debt, light assets and high quality with a focus on premium residential capabilities. In the future, CIFI will focus on 3 core businesses. First, [indiscernible] rental business, managing over RMB 446 billion premium office and retail properties in top cities like Beijing, Shanghai and Chengdu, generating an annual rental income of RMB 1.8 billion. Growth is steadily maintained through operational enhancements. Second, highly focused self-developed projects, narrowing down into different presence in core cities to capture urban upgrade opportunities. Number three, asset management business. Leveraging CIFI's strength, we will vigorously develop our asset management business, learning from Blackstone [indiscernible]. CIFI's asset management arm has preserved its key talent and core competencies. Our dual GP structure, which is capital partners lead fundraising while project teams focus on operations will keep us competitive. This asset-light approach avoids heavy leveraging while aligning interest. In response to the reality that the traditional development model has become ineffective in the industry. During this round of adjustment, we have established 5 core strategies: number 1, regional focus, concentrating resources in core markets; number 2, premium product strategy with focus on creating high-quality upgraded properties as our core product direction; number 3, for good strategy that creates a value chain of good houses, good services, good communities and good lives. Number 4, to apply efficiency improvement strategy that includes the 2070 project, targeting a 20% premium and a 70% turnover rate, and 3,500 project, keeping construction costs less than RMB 3,500 per square meter to refine our operations through lean management and AI thinking and to reshape our supply chain towards a client-centered and value-oriented model. And number 5, steady operation strategy that emphasizes quality and efficiency over speed and scale. Update financial and risk control system. The crisis has prompted us to deeply reflect on the past model. We will establish for financial [indiscernible], strengthen our resilience to secure the company's cross cycle development in the next 30 years. CIFI gets 3 core competencies after 25 years of [indiscernible]. Number 1, full cycle expertise. With 25 years of experience, it has standardized product system and a complete team, covering the entire development cycle from fundraising, [indiscernible] diversified operations, CIFI has the ability to operate and coordinate across the real estate business chain, integrating the operation experience of property management, rental housing commercial properties, forming a differentiated competitiveness in a complex market environment. Our subsidiary, Ever Sunshine Services ranks among the top 9 in the property management sector with its business covering more than 100 cities and a managed area of 350 million square meters. Our leasing brand [indiscernible] managing 130,000 units, ranking among the top 4 in the industry and has become a core partner for the local government in revitalizing government-owned assets. Number 2, [indiscernible] footprint. CIFI has a strategic footprint with deep rooted presence in China's key economic zones such as Yangtze River Delta and relies on local resources to achieve mounting business layout. During active [self correction] in recent years, I was always been told that CIFI is different from other private developers. [indiscernible] First, CIFI's interest-bearing debt is at a relatively low level among top private loan developers. By the end of 2024, it was RMB 86.6 billion with unsecured debt accounting for 70%. After the restructuring, the total outstanding amount and net debt ratio will be significantly reduced. Second, under the delivery crisis, SF still managed to deliver a total of 270,000 housing units in the past 3 years with a delivery rate of 95%. The subsequent delivery pressure has relatively eased and our performance is well recognized by the government. Third, in the face of the pain of industry transformation, CIFI has a decade-long competitiveness in real estate chain operations, which provides the drivers for compound growth. Fourth, when people choose or are forced to leave the sector, we retain the most of our core teams, preserving our human capital for the future. Fifth, the CIFI team embodies the most positive mindset. We never give up. During the industry's adjustment years, we have maintained a normal operation with a strong team cohesion and a stable organizational structure. Sixth, while some are still wavering in where to go, CIFI has a clear and firm direction moving forward with a strong consensus among levels enabling [indiscernible] survival to complete recovery is still full of difficulties and challenges. Currently, we are at a crucial moment of climbing over 5 substantial obstacles. The first stage is to repair the balance sheet through debt restructuring. The second stage is to gradually restore credit, which requires time and market testing. The third stage is to retain a certain amount of funds from operations, resume investment and expand prudently within the safety margin. The fourth stage is to resume profitability under the new model and the last stage is to resume dividend distribution. Although the road ahead is full of challenges, after 3 years of [indiscernible] the CIFI management team is still full of fierce resolution. We are confident in leading all employees to overcome challenges with full force, living up to the expectations of all stakeholders and creating value for them. Finally, I would like to thank all the creditors again for standing by the company in the past 3 years. Never give up during a complex market environment is my motto. An excellent team of CIFI gives me all the confidence. I maintain unwavering confidence in CIFI's long-term growth prospects and firmly believe in the investment value of our stock. We are well aware that effecting change is never smooth sailing, but we will always have the courage to carry out reforms and embrace changes with the spirit of entrepreneurship. Thank you all.

Thanks Lin Zhong. Now we'll have Mr. Yang Xin.

[Interpreted] Good afternoon, everyone. I am Yang Xin, the CFO of SFI Holdings. I am honored to have the opportunity to engage in such large-scale conference with all of you again after 3 years. Recently, we have been communicating with onshore and offshore investors. Their common views are: first, the Chinese real estate cycle has reached its lowest, while CIFI can become a market model of private enterprise transformation after this round of crisis. Second, the stability of the company's management team is well preserved. And they are optimistic about the potential return brought about by value repair after share conversion and industry recovery, and have clearly expressed their preference to fully convert their bonds into shares. As the company's Director and CFO, I think the restructuring plan holds a significant strategic value for CIFI, allowing the company to obtain a valuable window to operate with a lighter burden. To start, CIFI is one of the few private owned developers whose total assets still exceeds liabilities before the holistic restructuring, with shareholders' equity exceeding RMB 10 billion by the end of 2024. Meanwhile, the company's attributable land bank value is approximately RMB 130 billion, mainly located in key cities such as Beijing, Guangzhou, Chengdu, [indiscernible], Chongqing, [indiscernible]. In addition, we have investment properties with an estimated value of about RMB 46 billion, generating nearly RMB 1.8 billion rental income in 2024, representing a year-on-year increase of approximately 10%. Furthermore, as of the end of 2024, the group's interest-bearing liabilities decreased to RMB 86.6 billion, a 30% lower compared to its peak, mainly due to the repayment of development loans after the delivery of existing properties. During a significant downturn, CIFI has maintained a firm relationship with its core bank partners. Currently, onshore and offshore unsecured debt account for 70% of CIFI's overall debt and all restructuring efforts strictly follow market practices. Offshore restructuring has achieved milestones, while onshore extension of medium-term notes and CMBS debt was completed. The holistic restructuring of RMB 10 billion onshore corporate bonds is currently underway, which will refer to offshore and onshore comparable cases and to be proposed based on the company's liquidity position, capital structure and asset portfolio. Our goal is to maintain alignment between both onshore and offshore holistic restructuring. The major feature of offshore restructuring is the debt to equity conversion [indiscernible] it is expected that after the completion of the restructuring, the scale of unsecured debt will be reduced by more than 50% to the level below RMB 30 billion. The tenure will be largely extended to 9 to 10 years and the interest rates will also be adjusted down to an affordable level. Other than the unsecured debt, the secured interest-bearing liabilities amount to an approximately RMB 26 billion, nearly 1/3 of which are commercial property loans and the remaining 2/3 are mainly development loans. Development loans will be repaid following project sales and deliveries. And by continuously improving the operating efficiency of investment properties, LTVs of commercial property loans will also be improved, allowing more refinancing opportunities. In summary, through holistic onshore and offshore restructuring, the absolute value of CIFI's interest-bearing liabilities will be reduced significantly, improving the maturity profile and lowering financing cost. Meanwhile, with the benefit of restructuring, the company's net assets will be largely increased. As a result, we expect CIFI's net debt ratio will soon return to the healthy level. Finally, I would like to suggest that our creditors to give priority consideration to the debt-to-equity conversion option for the following reasons. With the liquidity of stock surpassing that of interest-bearing debt and offering significant upside potential, debt-to-equity conversion not only optimizes the capital structure, but also provides creditors with flexible exit options and opportunities for future value appreciation. With USD 6.8 billion offered at being successfully structured, we expect a healthier debt structure, which build a foundation for recovery. Converting creditors into shareholders aligns interest with the company's growth, boosting confidence for management to maximize value for major stakeholders. And last but not least, CIFI's deep expertise in asset-light operations backed by seasoned teams across sectors will unlock value of [indiscernible] under its new post restructuring. That's all for me today. Now I will pass on to [indiscernible].

[Interpreted] Good afternoon, everyone. I am [indiscernible], the person in charge of the overseas restructuring of CIFI Holdings. Thank you for joining this call. Now I will walk you through the details of the offshore debt restructuring plan. Facing an extended period of rapid decline in the industry, CIFI has adhered to the belief of taking a step back to keep moving forward. With understanding and the support of all the creditors, we are one step closer to our major goals of the offshore restructuring, which are reducing the debt burden, achieving business transformation and rebuilding our credit. After the RSA was launched last year, creditors representing nearly 90% of the in-scope debt has signed up to the RSA. We truly appreciate your continuous understanding and support. Following the convening order granted by the High Court of Hong Kong, we are pleased to open up the scheme voting last week. To facilitate your voting process and option selection, let me walk you through some of the key points. The in-scope debt totaling a principal of USD 6.8 billion include 10 senior bonds, 1 perpetual bond, 1 convertible bond and 13 offshore loans. Taking into account of different demands of creditors and following the principle of debt restructuring for the short term, equitization for the medium term and principal protection for the long term, the scheme offers multiple options for creditors. There are 5 categories of options. Option 1A or 1B offers that 32% of the existing debt will be converted into new zero coupon bond or loans. The term is 2 years and can be extended to 3 years. The remaining principal will be repaid at 100% upon maturity. At the end of 12 months from the reference date, the company can repay up to 30% of the remaining principal at a price of 75%, which is 24% of the principal of the existing debt. Creditors who choose Option 2A or 2B will proportionately share upfront cash of USD 35 million, which will be repaid in 3 installments within 1 year from the restructuring effective date. If a creditor selects option 2A, 90% of the existing debt will be converted into a 4-year 0 coupon mandatory convertible bond with a conversion price of HKD 1.6 per share. And the mandatory conversion will be carried out over 4 years. MCB holders are also allowed to voluntarily convert bonds without any limit at any time. If a creditor selects option 2B, 60% of the existing debt will be converted into the MCB and 30% will be converted into new medium-term notes with a term of 4.5 years and a coupon rate of 2.75%. Option 3 is a principal preservation option for creditors who prefer to hold bonds for longer term. Option 3 and Option 5 will proportionately share the upfront principal of USD 5 million. The remainder will be converted into the new long-term notes with a coupon rate of 1% to 1.25%. The long-term instrument bears an initial tenor of 6 years. Given necessary conditions met, the company has the right to extend the tenure up to 9 years on a yearly basis. Creditors who choose option 4A or 4B will convert 50% of their existing debt into new bonds or loans with a coupon rate of 1%. The initial tenure is 4.5 years with the company having the right to extend the term up to 5 years. Option 5A and Option 5B are principal preservation options for creditors who prefer to hold loans. Again, option 5A and 5B will proportionately share the upfront principal of USD 5 million with Option 3 and the remainder will be converted into the new long-term loans denominated in U.S. dollar or RMB. The new long-term loans bear the same terms with the new long-term notes under option 3. Creditors can select any of or any combination of the above options. In addition, the scheme intends to safeguard interest of creditors through a variety of credit enhancement measures involving offshore assets [indiscernible] and onshore assets. The controlling shareholder will also support the restructuring by converting shareholder loans into equity and suspending receiving cash dividends. As you can see, different instruments offered by the scheme allow creditors to make choices that are catered to their own best interest, especially considering the offshore credit appetite for capital market flexibility. The scheme specifically sets up the debt-to-equity conversion options being the option 2A and option 2B with no size cap. This not only prepares immediate cash compensation for creditors, but also arranges a more liquid exit channel and enables creditors to share the potential equity benefits after the company is back on its feet. By providing this option, the company also hopes to express its confidence in recovery and its determination to pay back creditors and shareholders. Finally, I would like to introduce the timetable. The restructuring is now in the most critical stage. The scheme and consent solicitation voting has started. The deadline for the custody instruction is at 5:00 p.m. on May 26. The deadline for the submission of account holders letter and lender proxy forms for voting and option selection is 5:00 p.m. May 28. Please act swiftly to avoid any unexpected circumstances at the last minute. After the above deadlines, the scheme meeting is scheduled on June 3 at 8:00 p.m. And the sanction hearing is scheduled on June 26 before the High Court of Hong Kong. We sincerely ask all creditors to vote in support of the scheme, and thank you. Thank you, Chairman Lin, Yang and Zhu [indiscernible], and thanks to those who spent time participating in today's call. Please note again, for bondholders under the scheme, the custody instruction deadline is 26th of May and an account holder letter submission deadline is 28th of May. For lenders under the scheme, the lender proxy form submission deadline is 28th of May. And for holders of [indiscernible], consent instruction deadline is 28th of May. Please note your own custodian might have an earlier deadline than the official ones. So we advise you to check with them to ensure the on-time submission. As you can see from the screen being shared, please ensure you leave sufficient time to meet the various deadlines of the scheme and the consent solicitation. If you have any further questions, you may contact Haitong International as the company's financial adviser, Linklaters as the company's legal adviser and Kroll as the information agent. Thank you, and have a good day. Goodbye. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]