Thanks! Just a follow up question on your comment. Why do you think that they didn't borrow lower interest rate debts from the very beginning of each project, but instead began with "bad debt"? It's kind of hard to understand the reason.
And by selling properties to improve liquidity and pay debt off, would top-line be reduced dramatically for the year and years to come?
They likely started with high-interest bond debt because their existing high debt levels made financial institutions unwilling to extend credit. Once they had completed the buildings, they could use the newly constructed assets as collateral to secure loans from financial institutions.
For the past 1.5 years, they have been selling assets while still managing to grow their topline. However, it is possible that this trend may not continue and topline growth could even turn negative at some point. Nonetheless, at the current valuation, I believe there is downside protection provided by the assets, especially considering that they have been selling assets for 1.5 years at book value.
Many thanks! The company was not well managed in recent years(19-23), high EBIT but with low ROIC, low ROE and minus FCFF for most of the years. I'll try to figure out the thesis here. Thanks!
Seems management were doing poorly on capital allocation in past years causing great liquidity pressure on balance sheet. And they stopped English version reports this year for some reason. What are thier rationales on these things?
When interest rates were zero, the company took on significant debt. They often issued "bad debt" (high-interest bonds) to finance their building projects. Once the buildings were completed, they refinanced this debt into "better debt" (loans from financial institutions with lower interest rates). At the moment it worked for them, but once interest rates raised this strategy did not work anymore as interest payments ate all the profit.
Now they are adapting to the new reality and improving very much operating margins to reverse this situation. Also they are selling assets to reduce debt and improve liquidity. This will be favorable for their balance sheet.
I have no idea why stopped english reports, but it looks irrelevant for me to the thesis.
Thanks! Just a follow up question on your comment. Why do you think that they didn't borrow lower interest rate debts from the very beginning of each project, but instead began with "bad debt"? It's kind of hard to understand the reason.
And by selling properties to improve liquidity and pay debt off, would top-line be reduced dramatically for the year and years to come?
They likely started with high-interest bond debt because their existing high debt levels made financial institutions unwilling to extend credit. Once they had completed the buildings, they could use the newly constructed assets as collateral to secure loans from financial institutions.
For the past 1.5 years, they have been selling assets while still managing to grow their topline. However, it is possible that this trend may not continue and topline growth could even turn negative at some point. Nonetheless, at the current valuation, I believe there is downside protection provided by the assets, especially considering that they have been selling assets for 1.5 years at book value.
Many thanks! The company was not well managed in recent years(19-23), high EBIT but with low ROIC, low ROE and minus FCFF for most of the years. I'll try to figure out the thesis here. Thanks!
Seems management were doing poorly on capital allocation in past years causing great liquidity pressure on balance sheet. And they stopped English version reports this year for some reason. What are thier rationales on these things?
When interest rates were zero, the company took on significant debt. They often issued "bad debt" (high-interest bonds) to finance their building projects. Once the buildings were completed, they refinanced this debt into "better debt" (loans from financial institutions with lower interest rates). At the moment it worked for them, but once interest rates raised this strategy did not work anymore as interest payments ate all the profit.
Now they are adapting to the new reality and improving very much operating margins to reverse this situation. Also they are selling assets to reduce debt and improve liquidity. This will be favorable for their balance sheet.
I have no idea why stopped english reports, but it looks irrelevant for me to the thesis.