Rent, and lot’s of it: Chinese edition

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Late last month, UBS fixed-income research told investors that Renhe Commercial (1387.HK), a commercial real estate developer in China, has not sold a thing for the year so far, thus recommending investors to sell their debt:

Our meeting with the company indicated that Renhe had yet sold any operating rights YTD. This, in our opinion, could be attributable to a combination of factors including its launch schedule, the weak macro-environment, non-prime project locations, and lukewarm investment demand especially when bank credits are tight. The company failed to produce any clear guidance for project launches at this point. Weak pre-sales makes the FY12 sales target of 100-200k sqm in operating rights (translating to a contract sales amount of cRMB3bn) challenging, and could delay the deliveries of projects pre-sold, receivable collections and launches of new projects. YTD, Renhe has collected only RMB100m-RMB200m of the RMB2.4bn trade receivables carried forward from FY11. In addition, the RMB1.6bn due from the disposal of BVIs remains outstanding and there is no deadline for collection. Together with the weak presales, it raises question on the business model.

According to UBS, the next two coupon payments will come due in September (US$39 mn) and November (US$17.6 mn). Given how cash-strapped this company is, it is obvious that it is in a desperate situation requireing some extraordinary or bizarre solution. The latest news via Sina suggests that Renhe Commercial is telling tenants in one of its commercial properties in Wuxi to pay 20 years of rent in advance. The property was acquired by RMB2.64 billion on Jan 2011 according to the report. The existing tenants are so angry at the company that they started closing their shops on 14 June. According to the report, more than 2000 shops in that shopping mall have closed down in protest of this desperately bizarre move.