Introduction
Xinyuan (XIN) is a real estate company listed on the New York Stock Exchange, has gotten far more attention than warranted by size because of its high “Yahoo Finance-type valuations.” And because XIN gets an “F” for public relations among NYSE-listed companies, there have been numerous articles written (Zhang, Morss, Garcia, Ramos since its last quarterly report speculating about or asserting what the future holds.
On Friday, February 27th, more will be learned when XIN reports its results for the last quarter of 2014. Equally important, it will send its 6-K numbers to the SEC. The point of this article is to highlight what we need to look for. I will follow up with another piece on what has been learned once the data is reported.
Troubling News
XIN followers are fully aware of the somewhat worrisome news reported with little commentary by the company. There was decline in real estate in China resulting from government policies. There was also the resignation of a couple of Board members and the replacement of several senior executives. But most important was the liquidation of the private equity company TPG’s convertible notes. XIN agreed to buy them back for $86 million. At the time, I speculated that:
TPG was targeting on some high return deal with XIN. Once it saw it was going to take more time than they anticipated, TPG wanted to get out. It could immediately redeem its convertible notes with a small profit and did.TPG has held off redeeming its stock because of the capital losses involved (they bought in on August 26, 2013 when XIN’s price was $5.54). Unfortunately, this all-too-likely further liquidation will overhang the market until it occurs.
XIN indicated the liquidation took place because it found the financial agreements required by these converts too restrictive. At the time, I did not believe XIN. I thought it was trying to put a positive spin on what was really bad news for the company. However, in light of XIN’s borrowing spree to purchase more properties over the last few months, the XIN explanation sounds increasingly probable.
