2012-07-03
In a farm in Miyun, a suburb of Shanghai, there are two excavators parked in the corner, covered in a thick layer of dried soil. Excavators have not been put into use for a long time, and their owner, Mr. Zhang, is feeling depressed. The busy excavators of the past two years have now been idle for almost half a year, and it is unknown when they will resume work.
Since the second half of last year, there have been fewer and fewer activities, and then they became less and less, until there were no more, "Mr. Zhang said helplessly.
Mr. Zhang purchased his first excavator with a mortgage loan in July 2010. In October last year, although the market was not good, Mr. Zhang, who did not need a down payment and could not resist the temptation, purchased the right to use his second excavator with a two-year financing period. The bank loan for the first unit can be fully repaid next month; but for the second unit, we have already postponed the repayment. If it really doesn't work, we won't let it go and let the manufacturer drag it back, "Mr. Zhang said.
There are many excavator owners whose financial situation is worse than Mr. Zhang's. Since last year, the construction volume in various regions has sharply decreased, and the demand for construction machinery has plummeted, directly affecting the repayment ability of users who purchase excavators with loans. According to statistics from the China Machinery Industry Federation, as of April this year, the accounts receivable of enterprises in the entire industry have reached 2.3 trillion yuan, a year-on-year increase of 17.88%.
Current situation of excavator industry
Since 2011, with the continuous decline in the growth rate of real estate and infrastructure investment, the downstream demand for various products of construction machinery has significantly decreased, and downstream customer funds have tightened. In order to win customers in fierce competition, some construction machinery manufacturers aggressively market with low or even zero down payment sales models. This overdrawn sales strategy has now begun to expose risks, causing a significant increase in the company's accounts receivable and the accumulation of bad debt risks; On the other hand, it also brings enormous pressure to the company's own cash flow.
But construction machinery companies are clearly unable to stop in this financing competition. On June 14th, Xiamen Xiagong Machinery Co., Ltd. announced its intention to issue corporate bonds not exceeding 1.5 billion yuan. Previously, Zoomlion announced its intention to apply for a 140 billion yuan credit financing business from banks. Sany Heavy Industries has also submitted an IPO application in Hong Kong, planning to raise $2 billion.
If the sales model of low down payment and zero down payment enterprises is not improved, the entire industry will compete in disorder, and even if they can raise funds, they will eventually lose market share, "Wang Jinxing, Deputy Secretary General of the China Construction Machinery Industry Association, told Caixin reporters.
Variable financial leasing
My first excavator had a down payment of 25%, and my second one had zero down payment, "Mr. Zhang explained to reporters. The so-called zero down payment financing lease means that I can rent it for free for a period of time." We can use it for free for six months and pay it off within two years
The unit price of engineering machinery products is high, and there are relatively few customers who pay in full. Generally, credit sales models such as installment payments, mortgage loans, or financial leasing are adopted, and the down payment ratio is generally controlled between 20% and 50% according to customer qualifications. But now many construction machinery companies have repeatedly lowered their down payment ratios.
Financial leasing business itself is a commendable form of bank mortgage loan, which has positive significance for financing, equipment upgrading, and industrial upgrading of small and medium-sized enterprises. In terms of operational procedures, users usually ask leasing companies to purchase equipment according to their own needs, and then lease equipment from the company for use. Users are required to repay the principal and interest of the funds advanced by the leasing company for the purchase of equipment in the form of rent during the contract period. Once the lease term is fully repaid, the ownership of the equipment will be transferred from the leasing company to the user. If the user fails to pay the rent on time, the equipment manufacturer generally bears joint and several liability.
Usually, financial leasing companies will sign cooperation agreements with each manufacturer and agent separately, clarifying that when there is a risk of rental payment, the manufacturer and agent shall bear the repurchase responsibility and pay a certain amount of security deposit, "a leasing approval personnel of Jianxin Financial Leasing Company told Caixin reporters.
There are currently two main types of institutions engaged in financing leasing of construction machinery. One is leasing institutions established by construction machinery manufacturers, such as Zoomlion Heavy Industry, Sany Heavy Industry, XCMG Machinery, etc., all of which have their own financing leasing companies. The second is an independent leasing company that does not rely on any enterprise. Leasing companies with a background in construction machinery manufacturers mainly rely on financing leasing business to increase financial leverage and rapidly expand market share. This business development model has gradually revealed risks.
According to the annual report of Zoomlion, in 2011, the company's financing lease payments amounted to 13.9 billion yuan, and the maximum exposure to providing guarantees for customer financing lease contracts was 1.63 billion yuan. Last year, leasing accounted for about 30% of sales, and this year it is expected to reach 35%, "a senior executive from Zoomlion revealed in an interview with Caixin reporters. He said that there has been no payment guarantee due to customer default yet. "Zoomlion's sales policy requires a 5% -30% down payment with detailed risk assessment standards
According to the senior executives of Zoomlion, in 2011, the company had a guaranteed loan balance of 9.092 billion yuan from customers, and paid a default payment of 190 million yuan to banks on behalf of customers, with a delinquency rate of 2.1%. Among them, 38.45 million yuan of default payments were made in the first half of the year. He believes that the default level is not high and the risk is still within a controllable range. But from this data, it can be seen that the default amount in the second half of last year was almost four times that of the first half, indicating an accelerating trend of risk exposure. According to Sany Heavy Industries' financial report, as of the end of last year, the company had a cumulative loan balance of 21.022 billion yuan for repurchase obligations, of which 1.161 billion yuan had been paid as default payments, with a delinquency rate of 5.5%. There have been multiple related lawsuits involving disputes over financial lease defaults.
The overdue rate of dealers' customers has reached about 20% now. It is common for dealers to advance funds for customers. Once dealers cannot advance funds, it will be reflected in the overdue rate of engineering manufacturers. This is a chain reaction, "an analyst told Caixin reporters.
The financing leasing companies of engineering manufacturers not only have to bear the risk of repurchase, but also the risk of repayment. In Wang Jinxing's view, zero down payment financial leasing has squeezed the income space of old customers. For example, users who enjoy deferred repayment, low payment, or even zero down payment often dare to obtain engineering contracts at low prices in competition. This has greatly impacted customers who previously had higher financing costs in the current market demand decline and a large number of idle equipment, "said Wang Jinxing.
Construction machinery manufacturers are still operating zero down payment in bank mortgage loan business. One is that the down payment is advanced by the manufacturer and does not require the user to pay interest; the other is to raise the product price so that the user can obtain a full loan from the bank, "a person engaged in concrete machinery agency told Caixin reporters. According to industry practice, the mortgage should be paid by the user with a 20% -30% down payment to the enterprise, and the purchased equipment should be delivered to the bank as collateral; At the same time, the enterprise assumes the responsibility of repurchase guarantee and pays a deposit of 8% -10% to the bank on behalf of the user; After reviewing the user credit information provided by the manufacturer, the bank will pay the manufacturer the loan except for the down payment. Low down payment and zero down payment mortgages greatly reduce the cost of purchase. Once the market is not good and there is no work to do, even without a machine, it is still cost-effective, "Mr. Zhang told Caixin reporters." I have a friend who bought an excavator and paid a down payment of 50000 yuan, used it for a year, but now the situation is not good, and the equipment is being towed away. Excluding the previous down payment and installment repayment, he still earned a net income of more than 100000 yuan
So who is losing money and who is suffering losses? Regardless of the sales model, low down payments lower the threshold for customer entry and increase repayment risks. Ultimately, it is the construction machinery manufacturing companies and banks that bear the risks, which we have never advocated, "said Wang Jinxing.
Xi Xiaoming, Vice President of the Supreme People's Court, also pointed out at the "Third China Financial Leasing Summit Forum" at the end of May that some emerging and relatively small financial categories and institutions have not yet established sound business models and risk controls. At the same time, existing laws and regulations are not sufficient to constrain their behavior, and the businesses engaged in by these financial institutions have greater potential risks. Among them, the financial leasing industry is currently the focus of the judiciary. He said that according to the requirements of the Finance and Economic Commission of the National People's Congress, the Supreme Court is drafting a judicial interpretation on financial leasing.
Cash flow crisis
Previously, the first half of the year was the peak sales season, and we had no problem earning seven or eight thousand yuan a month. However, this year we have indirectly reduced our salary. Previously, the work done by one person was reduced to four shifts, resulting in a much lower salary. "An employee of Sany Heavy Industry's pumping division revealed in an interview with Caixin reporters that there are still delays in salary payments." This is to make us unable to tolerate low wages and resign voluntarily, saving us compensation for layoffs
The current situation of Sany Heavy Industries' employees reflects its great financial pressure. According to the Q1 2012 financial report, Sany Heavy Industries achieved a net profit of 2.8 billion yuan, a year-on-year increase of only 5.3%, but accounts receivable reached 20.123 billion yuan, an increase of 8.8 billion yuan from the beginning of the period. Excluding the factor of customary first quarter stocking every year, the increase in Sany Heavy Industries' accounts receivable directly reflects the increasing difficulty of collecting payments from downstream customers of the company A mechanical industry analyst analyzed to Caixin reporters. According to the financial report, Sany Heavy Industries' book value of monetary funds at the end of the first quarter was only 6.893 billion yuan, a decrease of 3.353 billion yuan from the beginning of the year and a decrease of 30.29% from the same period last year. Its mortgage loan balance accounts for 90% of its income, which is comparable to when funds were most tight in 2005.
The consequence of excessive marketing in the construction machinery industry is a significant increase in accounts receivable, "the analyst pointed out. The difficulty in collecting accounts receivable and the decline in turnover directly lead to tight cash flow for enterprises. The total net cash flow generated from operating activities of the top eight listed construction machinery companies in terms of sales revenue decreased directly from 9.652 billion yuan in 2010 to a net outflow of 2.814 billion yuan last year, far below the net profit of 23.012 billion yuan.
XCMG Machinery stated in its annual report that due to the continuous decline in the construction machinery market, industry competition has become more intense, and the overall accounts receivable occupation of the entire industry, including the company, continues to increase. Liu Gong also stated in the annual report that the proportion of accounts receivable to total assets increased by 2.4 percentage points compared to the beginning of the period, mainly due to the relaxation of domestic sales credit policies.
Taking Zoomlion, which has relatively abundant funds, as an example, its accounts receivable reached 11.658 billion yuan in 2011, a year-on-year increase of 67.81%, far exceeding its profit growth. XCMG Machinery's accounts receivable growth rate has doubled, with accounts receivable of 9.772 billion yuan at the end of 2011, a year-on-year increase of 148.36%.
According to statistics, the total accounts receivable of the top eight listed construction machinery companies in the first quarter of this year was 58.374 billion yuan, an increase of 41.5% from the end of 2011.
The excessive sales policy has led to the industry characteristic of accounts receivable growing faster than revenue growth in the construction machinery industry, "said the analyst. Among them, Sany Heavy Industry, Zoomlion Heavy Industry Science and Technology, and XCMG Machinery's accounts receivable increased by multiples of revenue, which were 2 times, 1.5 times, and 5 times respectively in 2011, and 16 times, 2.57 times, and 3 times respectively in the first quarter of 2012.
At the same time, the accounts receivable turnover rate is also decreasing. Sany Heavy Industry's accounts receivable turnover rate in 2011 was 6.0, a decrease from the turnover rate of 6.7 in 2010. XCMG Machinery experienced the most significant decline, from 8.8 in 2010 to 4.8 in 2011.
We have taken some measures to increase accounts receivable and collect payments, "the senior executive of Zoomlion Heavy Industry Science and Technology Co., Ltd. told Caixin reporters. The most important thing is to link sales personnel's receipts with commissions; If the payment cannot be recovered, there will be corresponding penalties for the sales personnel. We expect that accounts receivable will not increase too much this year, and the collection situation in May will be relatively good
Desire for financing
On the one hand, cash flow is tight, and on the other hand, a large amount of funds are needed to support aggressive market sales strategies, in order to squeeze out competitors in the declining market. Now, construction machinery manufacturers are extremely eager for external capital injections.
Recently, several major manufacturers have launched capital market financing plans. The company's 140 billion yuan credit is not an actual loan, "Shen Ke, Secretary of the Board of Directors of Zoomlion Heavy Industry Science and Technology Co., Ltd., told Caixin reporters. The more than 20 billion yuan credit increase this year is mainly in non recourse factoring (selling accounts receivable and debt to banks). In 2012, about 40% of financing lease receivables were involved in factoring business. Based on an annual sales revenue of 62.5 billion yuan, there will be nearly 9 billion yuan in factoring business.
Previously, Zoomlion planned to develop its main business of concrete machinery by selling its environmental sanitation machinery business to raise funds, but it has not been successful so far. The main issue is that it is difficult to determine the shareholding ratios of various parties, and even the company's executives have different opinions on the proportion of each PE, "said the senior executive of Zoomlion.
Sany Heavy Industries' financing plan is to go public on H-shares. The issuance period of H shares is August 31st, and we will choose the issuance time based on the price situation. We want to sell for 20 yuan (Hong Kong dollars, per share price), "said Xiang Wenbo, President of Sany Heavy Industry, to Caixin reporters. He said that issuing H shares is more for internationalization.
Sany Heavy Industries not only needs more financial support for sales, but also needs a large amount of funds to repay their debts after acquiring the German company Putzmeister, "a PE person who invests in the construction machinery industry told Caixin reporters.
In August 2011, the China Securities Regulatory Commission approved Sany Heavy Industries to issue 1.541 billion H shares (including the over allotment portion). However, due to market fluctuations, the issuance was reduced to 1.34 billion shares, with a guidance price range of HKD 16.13 to HKD 19.38 per share, raising a maximum of HKD 26 billion. But a month later, Sany Heavy Industries temporarily shelved its H-share listing plan citing market fluctuations.
You see, now is not a good time either. Sany Heavy Industries still needs to go public in Hong Kong, which shows how urgent its funding needs are The above-mentioned PE person said that in addition, the investment bank arranged by Sany Heavy Industry this time is underwriting rather than underwriting, "under this approach, Sany Heavy Industry's price cannot go up It is understood that Sany Heavy Industries has arranged institutions including Bank of America Merrill Lynch, Citigroup, CITIC International, ICBC International, and Morgan Stanley to underwrite the issuance and listing of H shares.
Send your inquiry directly to us
