China Fortune Land Development (CFLD) has announced a restructuring plan for all of its 11 offshore bonds worth $4.96bn. Below is a summary of the details:
- A cash repayment of 1% of the existing bonds’ principal amount.
- For bondholders who vote in favor before the deadline of October 13, 2022:
- After deducting the above 1% cash repayment, 46.7% of the principal will be exchanged into a “New Bond 1”. These bondholders will have the option to exchange the remaining 53.3% of the principal to either/both of a “New Bond 2” and “New Bond 3”
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- New Bond 1 has a mandatory debt-to-trust unit swap where CFLD plans to swap up to 35.8% of the new bond’s principal into a property trust before end-2022
- New Bond 2 is a convertible bond that can be swapped into either shares of a Cayman trust that wholly owns a BVI SPV or directly into the shares of the SPV. As per IFR, the SPV will wholly own a Hong Kong SPV, which in turn holds shares in an onshore China business portfolio. CFLD is planning an offshore listing of the onshore business portfolio in 2026 at an RMB 50bn ($7.1bn) valuation. It will allow the HK SPV to purchase the shares at a discount valuation of RMB 37.5bn ($5.34bn) where bondholders will receive $1.33 worth of shares for every $1 in principal.
- New Bond 3 is a regular conventional bond
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- The company has offered several combinations for the portions of each bond that an investor may choose to receive
- After deducting the above 1% cash repayment, 46.7% of the principal will be exchanged into a “New Bond 1”. These bondholders will have the option to exchange the remaining 53.3% of the principal to either/both of a “New Bond 2” and “New Bond 3”
All the new bonds will have a maturity of 8Y and a coupon rate of 2.5%. Below is a brief on some structural aspects on the new bonds:
- For bondholders who do not submit supporting votes by the deadline, 46.7% of the principal will be exchanged for “New Bond 1” and 53.3% of the principal exchanged to “New Bond 2” only
- Creditors will also receive zero coupon bonds (ZCBs) with the principal equal to the accrued and unpaid interest of their existing notes, calculated at an annual rate of 2.5%
- Additional ZCBs may be issued to cover accrued and unpaid interest when New Bond 2 is converted to equity or, if New Bond 1 and New Bond 3 are redeemed before maturity.
CFLD said that it will do its best to sell certain assets and use the proceeds to redeem at least 64.2% of the principal of “New Bond 1” by end-2023. Plans include selling 7 industrial areas for ~$6bn and several commercial and other properties for ~$4.7bn.
The developer needs consent from creditors holding over 50% of the principal to go ahead with the plan. Lucror Analytics notes that while the plan seems fair as there is no haircut and includes credit enhancements, the new 2.5% coupon is a negative because its existing bonds carry coupons of 7-9%. Also, they prefer New Bond 3 as they are doubtful about the 2026 business valuations.
