China Fortune Land announces restructuring plan

Published 19 September 2022 01:13:26 PM

HONG KONG, Sep 19 (IFR) - China Fortune Land Development, a real estate company that defaulted on its offshore debt in 2021, has announced a restructuring plan for all of its 11 offshore bonds totaling US$4.96bn. 

The company has proposed to make a cash repayment of 1% of the existing bonds' principal amount to bondholders who agree to its restructuring plan before the deadline of October 13.

For those who vote in favour, after deducting the cash repayment, 46.7% of the principal will be exchanged into a "New Bond 1". They will have the option to exchange the remaining 53.3% of the principal amount to either or both of the "New Bond 2" and "New Bond 3". The company has offered several combinations for the portions of each bond that an investor may choose to receive.

Investors who do not submit supporting votes by the deadline will have 46.7% of the principal exchanged for New Bond 1 and 53.3% of the principal exchanged to New Bond 2 only.

All the new bonds have a tenor of eight years and a coupon rate of 2.5%.

Fortune Land said it will "in its best effort" dispose of certain assets and use the proceeds to redeem at least 64.2% of the principal of the New Bond 1 by the end of 2023. The New Bond 1 also carries a mandatory debt-to-trust unit swap that the company plans to swap up to 35.8% of the new bond's principal into a property trust by the end of 2023.

The assets the company plans to dispose of include seven industrial areas in Langfang, Hebei province, to be sold for Rmb42bn (US$6bn), and several commercial properties and other properties for Rmb33bn.

New Bond 2 is a convertible bond that can be swapped into either shares of a Cayman trust that wholly owns a BVI special purpose vehicle or directly into the shares of the SPV. The SPV will wholly own a Hong Kong SPV, which in turn holds shares in an onshore China business portfolio. Fortune Land is planning an offshore listing of the onshore business portfolio in 2026 at a valuation of Rmb50bn, and it will allow the HK SPV to purchase the shares at a discount valuation of Rmb37.5bn, so bondholders will receive US$1.33 worth of shares for each US$1 in principal.

The onshore business portfolio comprises CFLD City Services, an onshore property management business, Partner Industry Service Group, an industrial real estate brokerage business that is 60%-owned by Fortune Land, and Torch Incubator, a science park operator that is 51%-owned by the company.

New Bond 3 is a conventional bond without any mandatory conversion mechanism.

All creditors will also receive zero coupon bonds in the principal amount equal to the accrued and unpaid interest of their existing notes calculated at an annual rate of 2.5%.

Additional zero coupon bonds may also be issued to cover accrued and unpaid interest when the CB is converted to equity or if the New Bond 1 and New Bond 3 is redeemed before maturity.

The restructuring plan will be implemented through a consent proposal process or a scheme of rearrangement process by the choice of the company. Fortune Land is required to gain consent from creditors holding over 50% of the principal to pass the plan. 

Lucror Analytics' analysts believe the restructuring plan is fair, as there is not an outright principal haircut and the company pledged some onshore assets at credit enhancement. However, analysts view the new coupon rate as negative, as the existing bonds carry interest rates of between 7% and 9%.

Lucror analysts prefer New Bond 3 as they are sceptical of the company's valuation projection through 2026. They also pointed out that the New Bond 3 will be more liquid while bondholders may find it difficult to exit the stake in the Cayman trust if the company fails to list in 2026.  

All 11 offshore bonds were trading at 11.25 on Monday.

Admiralty Harbour Capital is the restructuring financial adviser, and Sidley Austin is the legal adviser. DF King is the information agent.

Reporting by Pan Yue; Editing by Morgan Davis