Track the Latest Updates on Debt Restructurings Across China Real Estate

In a latest update China Fortune Land Development (CFLD) has amended its restructuring plan (given below) by increasing the cash repayment to 2.8% of the existing bonds’ principal from 1%. It will repay 1% on the new restructuring deadline of December 13 and an additional 1.8% on a separate undisclosed date prior to 31 December 2023. CFLD also loosened the eligibility requirements for the repayments – bondholders need not retain all the bonds held on the restructuring deadline until the additional 1.8% is paid. They can hold part of the bonds to qualify too. CFLD said the restructuring will be implemented via a scheme of arrangement (SoA).

CFLD initially said that bondholders holding more than 50% of its offshore bonds have accepted its debt restructuring plan. Below is a summary of the details regarding its restructuring plan for all of its 11 offshore bonds worth $4.96bn:

• 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”
    • • 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
  • The company has offered several combinations for the portions of each bond that an investor may choose to receive

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 would require consent from creditors holding over 50% of the principal to go ahead with the plan. Lucror Analytics noted that while the plan seemed 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.

CFLD said that investors holding an aggregate principal amount of more than $1bn of the notes have selected New Bond 2 as part of their restructuring consideration. It added that it “strongly encourages” holders who have not acceded to the plan to do so in order to enjoy the cash pre-payment.

When the plan was being launched it was met with resistance from its creditors. At that time, advisers of an ad-hoc bondholder group of CFLD’s dollar bonds planned a conference call for all creditors on 22 September 2022 to explain why the restructuring offer should not be supported. The appointed advisers were Latham & Watkins LLP and Alvarez & Marsal Inc. and represented holders of more than 25% of CFLD’s dollar-bonds outstanding in February, sufficient to block CFLD’s restructuring plans. However, the developer said that there was no alternative if the offer was not completed. Credit Suisse analyst Daniel Tam said that under CFLD’s “best-case scenario” proposal, bondholders may be able to recover ~30% of their original notional investment by end-2023. Anthony Leung, head of fixed income at Pollock Asset Management noted that CFLD’s “current bond price is not reflecting the successful execution of such plans”.

Sunac China has provided details regarding its $9.1bn offshore debt restructuring plan, in an exchange filing. It plans to swap $3-4bn of debt into ordinary shares or equity-linked instruments while the remainder of its outstanding debts would be converted into new dollar bonds with 2-8Y maturities. Interest payments on these bonds will begin after two years with the accrued interest over the two years being payable then. The developer got approval from creditors holding over 30% of its bonds. Sunac’s dollar bonds were trading slightly higher by over 1 point at 18-19 cents on the dollar.

The developer initially faced opposition regarding its preliminary offshore bond restructuring plan from an ad hoc bondholder committee which collectively holds at least 25% of its outstanding offshore bonds. After having defaulted in May, the developer said that it aimed to frame a restructuring plan by year end. As part of that, it sought to swap about 40% of its offshore bonds into shares in Hong Kong-listed Sunac China Holdings, as per sources. For the remaining 60%, Sunac planned to extend its public and private offshore bonds by up to 7Y with principal repaid via installments. The opposition to its plan by bondholders underscores the increasing difficulty that Chinese developers face in offshore markets due to record defaults.

Logan Group has briefed some of its creditors about a draft proposal to restructure more than $6bn in offshore debt. A source said that the proposal would see Logan extend the average term of its debt to slightly more than 5 years. Sources note that under Logan’s draft proposal:

• Public notes will be fully paid in 6.75 years. The first batch of principal payments would happen 33 months after a restructuring becomes effective.
• Its privately placed bonds are to be paid back in 5 years. The first principal payments would be made 30 months after restructuring.

Logan intends to use its offshore assets to back its restructuring. However, the discussion on its draft is ongoing and subject to revision. At the moment, Logan has suspended dollar bond payments.

Fantasia Holdings proposed a preliminary offshore debt restructuring plan with the following details:

• A haircut of up to 60% on its dollar bonds
• Swap the remaining debt into equity shares, as per emerging market news provider Redd intelligence,.

In May, the developer was said to face possible liquidation after it received a wind-up petition from Flower SPV-4 Ltd. on failing to repay an outstanding loan of $149mn on May 26. The petition was filed in the Grand Court of the Cayman Islands. In an exchange filing Fantasia said “it would oppose the petition vigorously”, and that it will apply to the Cayman Islands court for a validation order to protect the company and its shareholders’ legal rights. Further, it added that in the event that the validation order is not granted, but the winding-up order is not dismissed or permanently stayed, “all transfer of shares on or after May 26 shall be void”.

On October 5, 2022, Fantasia said that it reached an agreement with its major dollar bond creditors regarding “basic commercial terms” of a debt plan. However, it did not say what type of debt or plan is involved or who the creditors were. The developer said that the deal would relieve its debt pressure. 

Guangzhou R&F Properties entered into a debt restructuring agreement by getting the consent of its bondholders to extend the maturities on 10 of its dollar bonds with a combined principal of $4.9bn as per an exchange filing. The 10 bonds are given below:

The developer had launched a consent solicitation in late June, to make amends on its notes like extending the maturity, changing terms of default, interest rate provisions and waiving the requirement to maintain and fund the interest reserve account. Noteholders accepted to consent proposal with 88% on average. It required at least 66% of the principal of each offshore bond to form a quorum and at least 75% of those who attended the meeting to vote in favor.

R&F Properties will therefore:

• Swap the above three of its 2022s for new 6.5% 2025s
• Swap the above three of its 2023s for new 6.5% 2027s
• Swap the above four of its 2024s for new 6.5% 2028s.

The new bonds will be amortizing.

• Class A Plan:
  • it would repay debt of $4.65bn consisting of syndicated loans and guarantee bilateral loans into new 6Y amortizing debt as follows:
    • Amortizing payments will start at the 36th month (14% of principal). This will be followed by the 42nd month (14% of principal), 48th month (14% of principal), 54th month (14% of principal), 60th month (14% of principal), 66th month (15% of principal) and 72nd month (15% of principal)
  • Class A creditors would be paid down from 3-6 years and have a cash-only interest rate of SOFR+ 250bps plus an unspecified credit adjustment spread. The Class A restructured debt is to be borrowed or guaranteed by Shimao, and in some cases also guarantees by certain offshore subsidiaries

• Class B Plan:
  • it would repay $7.13bn across all public/private bonds and unguaranteed bilateral loans of $340mn via six tranches of new notes as follows:
    • Tranche 1: Notes with a maturity of 39 months (9% of principal)
    • Tranche 2: Notes with a maturity of 45 months (9% of principal)
    • Tranche 3: Notes with a maturity of 57 months (18% of principal)
    • Tranche 4: Notes with a maturity of 69 months (18% of principal)
    • Tranche 5: Notes with a maturity of 81 months (23% of principal)
    • Tranche 6: Notes with a maturity of 93 months (23% of principal).
  • Class B creditors’ new bonds would amortize over 3.25-7.75 years at an interest rate of either 4.5% cash or 5.5% payment-in-kind (PIK) . Class B bonds are to be issued only by Shimao and have no guarantors, said the source.

Lucror Analytics notes that the restructuring does not include a haircut for creditors. However, the plans will exclude $2.3bn in offshore debt including project loans, and loans backed by onshore financial institutions. It was reported that creditors wanted Shimao to treat all classes of offshore creditors equally. Sources said that creditors requested Shimao to prevent capital from flowing out from its offshore entities. Creditors were also said to be planning to ask the company for an increase in the ratio of the amortized repayment, and a sweetener to enhance the credit profile of Shimao’s debt.

Besides, Shimao also is reported to have told some of its offshore creditors that it planned to pay them interest after its cash flow recovers. The developer will retain the right to dispose two assets in Hong Kong and use the proceeds for pro-rata repayment/prepayment/repurchase the new instruments issued in the secondary market with regard to the restructured debt. Admiralty Harbour Capital and Sidley Austin are advisers to Shimao on the restructuring.