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【Media Report-Leader Club】Xu Yafeng of WINS: Seizing the Opportunity of Transformation and Development of Real Estate Enterprises

Abstract:Xu Yafeng believed that deleveraging would be continued. We should face the adjustment of policies and market change with prudent attitude instead of being too pessimistic.


《Leader Club》, Hong Jing, reporting in Shanghai


Data from Chinese Financial Stability Report (2018) issued by People's Bank of China showed that 136 listed real estate enterprises had up to 79.1% of average asset-liability ratio in 2017, in which 26 enterprises had exceed 85%. Part of funds illegally flowed to real estate, leading to rising leverage ratio of financing.


However, since tightening of real estate financial adjustment policies in 2016, the diversified financing channel for development enterprises has been blocked up and the development relying on debt has been unsustainable. In such background, real estate private equity fund started showing its strong power.


"Real estate was one of major markets and fields of indirect financing in the past. There were a lot of debt capitals precipitated in the industry." Xu Yafeng, the president of WINS told the reporter. The development trend of capital market is to break rigid payment and the financing method is transformed from being centered on indirect financing to being centered on direct financing.


"However, as one of major methods of direct financing, private equity funds will have better prospects". In Xu Yafeng's opinions, the transition of development model of real estate enterprises benefit a lot for WINS, such real estate private equity funds with long established time and excellent achievements. WINS is also confident to get the opportunity in industry transformation.


"Capital Link" of Real Estate Finance


According to public materials, WINS Investment has started to explore real estate financial business since 2006, launches the first standardized real estate USD fund at home as fund manager jointly with UBS Global Asset Management (UBS) in 2008; and is officially established with investment from Gemdale Group in 2010, which is an important part of Gemdale's "One Body and Two Wings" strategy with branches covering Beijing, Shanghai, Shenzhen and Wuhan.


Leaderclub has learnt that, at the beginning of establishment, WINS might just assist the parent company in equity or claim financing. With intensifying competition in real estate market, WINS has gradually noticed that the situation of small and middle-sized developers get harder, and tightening liquidity make them more difficult to obtain money. Based on such format, WINS has worked "investment + agent construction" business together with Gemdale Group in recent years. Relying on platform advantage and stock-trading ability, it takes close collaboration with institutional investors and has cooperation in financial innovation, assets acquisition and fund raising fields; also it has development jointly with small and middle-sized developers, which gradually real estate financial server facing all developers and institutional investors.


Compared with development business, stock transformation is attracting more and more real estate fund. At the same time of investing in residential business, WINS also focuses on city renewal. "The stock market will have an opportunity of revaluation in two to three years." Xu Yafeng explained to the reporter, for the future valuation of holding assets, its pricing by capital market would reverse the current earning value of the assets and then price the assets.


Different from general real estate fund, WINS makes a contribution in financial innovation first by combination of financing demanding of real estate enterprises and revenue demands of investors. Xu Yafeng introduced that WINS has successfully obtained and released no-objection letter of "Harvest-Gemdale No. 8 Bridge Asset-Backed Security (ABS)" approved and issued by Shanghai Stock Exchange by cooperation with Gemdale Properties & Investment and Harvest Capital in May 2017 after Gemdale Properties & Investment Group acquired Shanghai No. 8 Bridge Project in September 2016. Leaderclub has learnt through public report that Shanghai No. 8 Bridge was an old plant in French Concession originally and became the location of "Shanghai Automobile Brakes" of SAIC after liberation. It is now successfully transformed into a cultural creative industry park.


For the investment strategy of stock assets, Xu Yafeng proposed "Dual-wheel Driving" concept—at first, in the early stage of project, we invested funds at a certain scale into the project through private funds and then developed, transformed and operated the project; Secondly, after assets formed relatively stable cash flow, we would withdraw from capital market through asset securitization.


"Actually, Chinese real estate industry is facing three contradictions at present." When speaking why real estate enterprises take high-debt model for the development, Xu Yafeng explained to the reporter, which were respectively "the contradiction between demanding for fast development of real estate enterprises and asset-liability ratio", "the contradiction between difficult equity financing and deleveraging" and "the contradiction between investment demands of investors and lacking of investment channels". And issuing ABS products is undoubtedly one of methods to solve those contradictions. Xu Yafeng said that on the one hand, asset securitization would strengthen the cash flow of stock assets to a great extent and make the asset itself a sustainable development model; on the other hand, for investors, it would realize fund withdrawal through asset securitization, which could be invested in new projects. At last, it helped investors obtain corresponding return during assets operation and value improvement, which was a "booster" of stock transformation and city renewal.


Strengthening Assets Management


In addition to continuous innovation in asset securitization, Xu Yafeng revealed that WINS was setting up city renewal funds. He presented that he would take proactive management of the whole project. In his opinion, as the urban development enters mature stage and infrastructure is completing, the housing supply and demanding is faced with adjustment. The development business of real estate would remove to inland central cities and city renewal layout would be further extended to coastal first-tier cities and key second-tier cities.


As for the form of property, Xu Haifeng hope WINS covers more extensive scope, "Like office buildings, regional business center and long-term rental apartments with potential of value improvement, etc., even non-performing assets would be involved."


Then, how did WINS enhance risk management to respond market change in case of current real estate market full of uncertain factors? Xu Yafeng told the reporter that the feature and major investment concept of WINS Investment was "Being Steady First", which would be devoted to creating as much value-added revenue as possible for investors on the steady basis. He introduced that, first, in the expansion and filtering of projects, WINS had formed a set of complete and clear evaluation system and investment guide system, which would be dynamically adjusted according to market situation. Secondly, WINS had rich experience and unique advantages in proactive management and operation of projects, which was able to convey the risk prevention.


As for post-investment management, WINS would adopt the way of combining on-site asset management system and asset management and supervision system to carry out close control of investment project in different stages. As far as Xu Yafeng concerned, from the view of overall environment and trend at present, deleveraging would be continued. We should face the adjustment of policies and market change with prudent attitude instead of being too pessimistic.

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