With looming debt pressures, Agile faces tough road to restructuring

Latest earnings figures show the real estate conglomerate remains mired in a liquidity crisis, while facing a court test and an impending payment crunch

Key Takeaways:

• At end of June, Agile had nearly $6.25 billion in borrowings due within one year
• The value of Agile’s property pre-sales fell by more than a quarter in the first half, while its net loss widened by 10%

By Lee Shih Ta

After six years of property crisis, some of China’s distressed developers are starting to claw their way out of danger by restructuring their debt. But Agile Group Holdings Ltd. (3383.HK) is still trying to strike a deal with offshore creditors, leaving its long-term survival in doubt.

The real estate conglomerate’s half-year earnings report highlights the scale of the challenge, with shrinking sales, a widening loss and a pressing debt load, with borrowings due within one year approaching 42 billion yuan ($6.25 billion).

Meanwhile, the firm faces a critical test in mid-October when it returns to court to fight a wind-up order filed by one of its creditors.

The firm’s total borrowings stood at 44.98 billion yuan at the end of June, down 1.82 billion yuan from a year earlier, but current debt borrowings with near-term maturities accounted for more than 90% of the total. Cash and bank balances had fallen about 19% to 4.51 billion yuan, with cash and cash equivalents at just 3.29 billion yuan and another 1.22 billion yuan classified as restricted cash. The company’s net gearing ratio also rose to 364.9% from 229.6% at the end of last year.

The company also disclosed that principal and interest payments on certain bank borrowings, other borrowings and senior notes had not been made on their scheduled dates, triggering cross-defaults. As a result, Agile acknowledged material uncertainties over its ability to continue as a going concern, with its future hinging on debt restructuring, loan renewals, property sales and asset disposals.

Agile’s debt crisis intensified in 2024 when it failed to pay interest on $483 million of 6.05% senior notes due in 2025 after a grace period expired. A sweeping debt restructuring process was launched after the default but more than two years later the company is still negotiating with major offshore creditors. It now aims to formulate a restructuring plan for their approval in the second half of this year.

Legal jeopardy

The court proceedings are adding to the time pressure. In December last year, Agile received a winding-up petition filed by Melco (Zhongshan) Business Management Co. Ltd. with the Hong Kong High Court over an ill-fated theme park venture. Agile said it would fight the claim for outstanding payments of $18.59 million and 2.35 million yuan while accelerating its debt restructuring. A court hearing was adjourned in June until Oct. 12.

Agile’s business is not generating enough cash to ease the debt pressure. First-half revenue fell 20% to 10.86 billion yuan, while the firm’s net loss widened 10% to 8.83 billion yuan. The gross loss also swelled to 2.05 billion yuan from 919 million yuan a year earlier, while the property development business logged an operating loss of 5.28 billion yuan.

More critically, the sales that Agile relies on to replenish its cash flow kept shrinking. Its first-half pre-sold value fell 26.5% year on year to just 3.8 billion yuan, while pre-sold gross floor area declined 26.1%. Recognized revenue from property development also fell 37.7% to 3.81 billion yuan. To tackle the problems, the company has proposed measures including accelerating pre-sales, collecting receivables, refinancing and disposing of non-core assets, although cash collected from property sales remains its main source of improving liquidity.

But Agile’s first-half pre-sales are dwarfed by its 41.97 billion yuan in short-term borrowings. And the fall in its sales over the six months was steeper than the roughly 14% to 16% drop for China’s top 100 developers overall. Among other distressed developers, Country Garden (2007.HK) reported a roughly 15% decline in contracted sales in the first half, while Sunac China (1918.HK) posted an outsized drop of more than 50%. Agile’s decline was not the biggest but was enough to put its recovery prospects under pressure when coupled with its debt woes.

Delayed debt restructuring

Agile is lagging some of its distressed peers on debt restructuring, with an approved plan still pending, while Sunac China has finished restructuring its offshore liabilities and Country Garden’s process is ongoing.

Agile can take some comfort in the relatively stable revenue from property management, which slipped just 5.7% to 6.04 billion yuan in the first half, accounting for 55.6% of group revenue and surpassing revenue from property developing. The segment recorded an operating profit of 429 million yuan, but gross floor area under management declined 4.6%, leaving the business unable to offset the drag on earnings from property development.

Chinese government data showed that sales of newly built homes nationwide fell 13.1% by value in the first seven months of this year, while investment in property development dropped 19.2%. Agile’s performance was even weaker, with pre-sales in the first seven months totaling just 4.29 billion yuan, down 24.6%. Pre-sales in July alone amounted to just 490 million yuan.

Any upturn in the property market is unlikely to rescue Agile from its woes in the short term. Its shares have fallen another 40% this year to HK$0.16, for a price-to-sales ratio of just around 0.03, a similar multiple to Country Garden’s. The immediate focus for investors is the October court hearing. But the best case scenario for Agile, even with eventual progress on debt restructuring, looks to be a prolonged period of balance-sheet contraction and deleveraging.

To subscribe to Bamboo Works weekly free newsletter, click here