Is SOHO China Broke?

SOHO’s Zhang Xin has big dreams that require big cash

According to a report last week in the National Business Daily, supernaturally aggressive real estate developer SOHO China is suffering from a severe cash crunch as it currently is attempting to build and launch several new commercial projects. At present the company is waiting to construct, or is in the process of building six property developments in Shanghai, of which four projects require another six billion yuan worth of capital. To top this off, the company announced recently that it would attempt to take a 50% stake in another commercial project on Shanghai’s Bund.

The National Business Daily reported that,

Company chairman Pan Shiyi had previously said SoHo China had cash of 20 billion yuan. However, according to the company’s Semi-Annual Report, SoHo China had actually only one billion yuan worth of cash or cash equivalent, after deducting taxes payable and other payables.

With a recently acquired development in Century Avenue expected to be delivered only next July, the company currently only has two developments that will soon be launched. The two developments are the SoHo Wangjing and the Zhongshan Plaza projects.

According to the report, work has yet to begun on SOHO China’s planned skyscraper at the Bund area, which has a projected height of 135.58 meters. Construction on the development is expected to start in 2012, with completion scheduled for February 6, 2014.

While SOHO’s attempt to buy into the latest project on the Bund would seem to indicate that they still have sufficient cash on hand, in the high-risk world of China’s domestic real estate developers, it could also be that this latest attempted acquisition is a marketing tool to help the company raise money to cover its existing obligations. As Enron and other examples taught us, when companies seem to rich to believe, they very often are.