Troubled Chinese luxury villa developer Tahoe Group is facing pressure from hundreds of customers who fear its projects under construction in Beijing and Shanghai might fail and never be completed.
The coronavirus pandemic, which brought China’s economy to a standstill and put a massive strain on highly-leveraged property developers, has brought the Fuzhou-based company’s cash flow closer to the brink of collapse. Construction at its sites has been stalled for months and Huang Qisen, its chairman, was temporarily placed on a national debtors blacklist in April for failing to repay loans.
In recent weeks, customers who were pre-sold flats and villas by Tahoe have demanded that the local governments in both cities investigate its projects.
“We are 100 per cent certain that Tahoe won’t be able to deliver the project on time in July,” said Jack Chen, a 30-year-old who bought a 2.7 million yuan (US$380,502) flat in Tahoe’s Dacheng Xiaoyuan project, which is located in the suburbs of Shanghai.
Construction stopped in September and only resumed partially this month, as Tahoe is behind on payments for building materials, Chen said, citing information gathered from contractors. “The foundation hasn’t even been laid in the southern part of the project,” he said. “We are all so anxious and desperate.”
More than 300 of the 2,000 customers who bought flats at Dacheng Xiaoyuan have been trying to gain the local authorities’ attention since April, by staging protests at Tahoe’s sales centre and posting articles on social media platforms.
In Beijing, buyers of Tahoe’s villa project Beijing Courtyard last week used Weibo, China’s Twitter-like social-media platform, to call upon the government to scrutinise and manage the money they have paid to Tahoe to ensure the project’s completion.
Tahoe did not return calls seeking comment.
The homebuyers have reasons to be concerned. After a global asset shopping spree between 2017 and 2018, Tahoe currently faces a wall of debt, even after it offloaded more than a dozen projects last year.
Last week, it reported a 59 per cent plunge in cash holdings to 5.6 billion yuan (US$790 million) over the first quarter of this year, while its revenue plummeted 94 per cent. The dive in revenue was a result of the outbreak, which had pushed sales off a cliff, the company said in a filing to the Shenzhen Stock Exchange.
Tahoe’s current cash bank is far from sufficient for the repayment of the 70.2 billion yuan in debt that is maturing within 12 months from the end of March, according to a report by global credit rating agency Fitch Ratings released on Monday. It downgraded its long-term default rating for the company to CCC+ from B-, based on uncertainties around its refinancing plans next year.
Tahoe will find it difficult to raise new capital, according to Fitch, after Huang was added to the Supreme People’s Court’s debtors list in late April for failing to repay a 120 million yuan loan to a trust company. Even though he was later removed from the list, after Tahoe settled with the trust, borrowers are likely to have weaker confidence in the developer, which has two-thirds of its debt in borrowings from trust and asset management companies, the rating agency said.
The pandemic is likely to accelerate a shake-up in the industry, according to rating agency Moody’s Investors Service.
“The challenging operating environment will favour the large and financially healthy rated developers,” said Josephine Ho, senior analyst at Moody’s. “Industry consolidation will continue, as weaker developers are forced out of the market.”
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More from South China Morning Post:
- Tahoe, Chinese developer at biggest risk of default, tries to offload a dozen projects to ease liquidity stress
- Chinese developers among debtors most at risk of refinancing failure as coronavirus hits businesses, liquidity, Fitch says