Real estate trio joins LM club

Published 25 February 2022, 04:00:35 pm

HONG KONG, Feb 25 (IFR) - Three more Chinese property developers are seeking offshore bond maturity extensions amid a sector-wide liquidity crunch, despite more policy support for the struggling sector.

In the past week, Zhenro Properties Group and Jingrui Holdings launched exchange offers for maturing bonds and consent solicitations for the rest of their curves, while Yincheng International Holding launched an exchange offer for 364-day notes issued in March last year.

The liability management exercises, aimed at averting outright defaults or complicated debt restructurings, are becoming more common for distressed developers as their liquidity crisis goes on.

So far, at least 17 developers have sought maturity extensions for offshore bonds since September. Most have been successful, apart from Kaisa Group Holdings, which failed to gain enough support, and Modern Land (China), which called off its proposal.

Last week, Guorui Properties said that it had received an overwhelming response to an exchange offer and consent solicitation on its outstanding US$323.745m senior 2024s that have a put option in April, while Yuzhou Group Holdings completed a relaunched exchange offer for two notes, after the majority had been exchanged in January.

Leonard Law, a senior credit analyst at research firm Lucror Analytics, said bondholders will accept exchange offers if the terms are seen as fair. "At a minimum, [the issuer] has to maintain the same coupon and call for just a short extension, plus a small cash consideration," he said. "The terms could be sweetened by including a partial upfront repayment, a larger cash consideration, or even personal guarantees from the controlling shareholder. Having sweetened terms increases perception of the company’s willingness to honour the debts."

Among the latest proposals, Law said Jingrui’s exchange offered better terms than Zhenro's.

Avert default

Zhenro on February 21 proposed to exchange five of its offshore bonds due this year with a total of US$1.05bn outstanding for new bonds due in March 2023.

The company is unable to repay a US$200m senior perp that was set to be called on March 5 and a US$50m 5.95% bond due on March 6.

Although the borrower was not obligated to call the perps in March, some think that when Zhenro announced in January that it would call them it created an obligation that could trigger a default if it does not act accordingly.

Zhenro also launched a consent solicitation to waive any breaches or defaults that will arise if it does not redeem the perps and the 5.95% bond. It warned that if the offers fail, it may consider an "alternative debt restructuring exercise".

Jingrui proposed to exchange its US$190m 12.75% senior notes due March 11 for new 12.75% notes due September 2023, and is soliciting consent from holders of its remaining US dollar bonds to amend the terms to avoid any cross-default arising from the exchange offer.

It is seeking a minimum acceptance amount of 90% and warned that it may not be able to fully redeem the notes if the offer fails.

Yincheng on February 25 launched an exchange offer for its outstanding US$165m 11.8% 364-day senior notes due March 16 for new 13% 364-day bonds on a par-to-par basis, plus accrued interest. No minimum acceptance amount was mentioned.

Zhenro's exchange offer and consent solicitation applies to its US$50m 5.95% March 2022s, US$218.39m 5.98% April 2022s, Rmb1.6bn (US$252.6m) 7.125% June 2022s, US$293m 8.7% August 2022s and US$236.3m 6.5% September 2022s. It has set a 85% minimum acceptance threshold for each of the five bonds.

For each US$1,000 principal amount of the four US dollar bonds, holders would receive new 8% bonds due March 6 2023 on a par-to-par basis; plus US$5 in cash, rising to US$10 if holders meet an early bird deadline, as well as accrued interest.

For each Rmb10,000 principal amount of the 7.125% Dim Sum bond, holders would receive new 8% Dim Sum bonds due March 6 2023 on a par-to-par basis; plus Rmb50 in cash, or Rmb100 at the early bird deadline, plus accrued interest.

The early bird deadline is March 4 and the offers expire on March 11.

Zhenro is also soliciting consent for eight US dollar bonds maturing between 2023 and 2026 with a total US$2.36bn outstanding. The consent fee is US$1 for each US$1,000 in principal amount, or US$2.50 if they meet the early bird deadline.

Under Jingrui's exchange offer, there are two options. For option A, holders will receive new 12.75% 2023 notes on a par-to-par basis plus any accrued interest. For option B, per US$1,000 in principal amount, holders will receive US$950 of the new 2023s, US$50 upfront principal repayment and US$10 as a cash incentive, plus accrued interest.

Jingrui has also launched a concurrent consent solicitation for its five remaining US dollar bonds with maturities between July 2022 and January 2024, totalling US$1.165bn. There is a consent fee of US$2.50 per US$1,000 in principal.

Tough choice

Wu Qiong and Marcus Yee, analysts at BOC International, wrote in a note bondholders have to make a tough choice between accepting an exchange offer or facing the risk of companies going bankrupt, as many issuers face uncertain futures even after debt extensions. Support for extensions is "a resigned choice, albeit a pragmatic one," they said.

For example, Yango Group last November completed an exchange offer to avoid an immediate default on three US dollar bonds, but on February 17 disclosed that it had defaulted on coupon payments totalling US$27.3m due on January 15 on two bonds, after failing to make a payment within the 30-day grace period.

Although Chinese authorities continue to loosen restrictions on the property sector, market participants expect more developers to face liquidity difficulties as the policy changes are not bold enough and will take time to filter through.

Banks in nearly 90 cities cut mortgage rates in February and the Shanghai branch of the People's Bank of China has asked some banks to speed up mortgage lending and construction loans. There are also reports that state-owned bad-debt management companies have been enlisted to support stressed developers. At the same time, more banks have sold onshore bonds to fund property M&A loans.

"There has been some mild loosening, but the impact is just marginal. To revive the industry, more needs to be done to support developers’ access to financing and to boost contracted sales," said Lucror's Law.

He said should industry conditions remain poor, other weak developers like Shimao Group Holdings might also carry out exchange offers.

By Carol Chan