GCL New Energy
GCL New Energy Noteholder Group Led by SC Lowy Organises; Advisors Circling
Fri 11/27/2020 06:11 AM
A group of holders of Chinese solar farm developer GCL New Energy’s $500 million 7.1% notes due Jan. 30, 2021 led by major noteholder SC Lowy, and with about 30% of the notes by value, have organised with the intention to discuss financial restructuring options with the company for the imminent bond maturity, said three sources familiar with the matter. Several financial and legal advisory firms are circling noteholders but none has been engaged yet, the sources and a fourth source said. Continue reading for the Asia Core Credit team's analysis of GCL New Energy's financial restructuring, and request a trial to access reporting and analysis of hundreds of other stressed, distressed and performing credits.
Meanwhile, it is understood that at least one hedge fund with a sizable position is separately in talks with the company, the sources said.
GCL New Energy has so far provided very little guidance to noteholders on how it plans to address the imminent $500 million note maturity since the company announced last month the appointment of Admiralty Harbour as a financial advisor for “evaluating its capital structure, assessing liquidity position and exploring options for the maturing notes”.
As first reported by Reorg, the Hong Kong-listed solar farm developer had also engaged Milbank as legal advisor to assist a likely notes restructuring. Admiralty Harbour had pitched various options to the company, including potentially launching a distressed exchange offer for the notes while Deloitte had been advising its Hong Kong-listed parent company GCL-Poly Energy in an informal capacity, as reported.
However, such an exchange could still be challenging given GCL New Energy’s tight liquidity as it likely needs to offer a significant amount of upfront cash in order to garner sufficient noteholders’ support while ensuring it can repay holdout noteholders, two of the sources noted. GCL New Energy reported an unrestricted cash level of just $95.3 million as of June 30 according to its 2020 interim report.
As detailed in Reorg’s legal analysis, if holdout creditor risk was a concern for the company in a distressed exchange scenario, another option would be to use a scheme of arrangement - likely filed in Bermuda given the incorporation of the issuer - to facilitate an exchange or some other type of restructuring of the notes.
Meanwhile, sources also noted that GCL New Energy itself lacks any meaningful offshore assets that could be pledged to noteholders, making a successful note exchange more challenging. As of June 30, the company owned and operated 208 solar power plants across 25 provinces in China with a total installed capacity of approximately 7.0 GW, according to the 2020 interim report.
In addition to the solar assets predominantly located onshore and encumbered by project level loans, GCL New Energy had government subsidy receivables totalling RMB 9.17 billion as of end-June including RMB 2.42 billion listed in the first seven batches of China’s national renewable energy subsidy catalogue.
As reported, the company’s management had previously hoped that the longstanding renewable energy subsidy backlog could be resolved soon through a special bond issuance reportedly being considered by the government. Meanwhile, any positive progress could also help GCL New Energy negotiate better prices in its ongoing asset disposals, management previously guided.
In the past two weeks, GCL New Energy had sold a total of 13 solar power plants with an aggregate capacity of 391 MW to state-owned firm Xuzhou State Investment & Environmental Protection Energy with total net cash proceeds from the sale expected to be about RMB 1.445 billion ($219.5 million), which the company said will be used for debt repayments, as reported. The sale is subject to certain conditions precedent.
The company also entered into a third phase agreement last week to sell an additional 18 solar power plants with an aggregate installed capacity of about 430MW to two entities jointly held by China Huaneng Group and ICBC Financial Assets Investment, as reported. The third batch disposal, together with the 403 MW second batch sale to Huaneng announced in September, is still pending dispatch of circular and shareholders’ approval.
The total net proceeds of RMB 3.384 billion from the second and third batch sale is expected to be used to cover an outstanding RMB 2.8 billion bridge loan provided by Huaneng and originally due in November according to two buyside sources. GCL New Energy had previously told investors that the maturity of the loan could be extended if the planned asset disposals could not be closed before then, as reported.
SC Lowy and GCL New Energy did not respond to requests for comment.
GCL New Energy’s capital structure is below:
(Click HERE to enlarge)
--Simon Lee
Meanwhile, it is understood that at least one hedge fund with a sizable position is separately in talks with the company, the sources said.
GCL New Energy has so far provided very little guidance to noteholders on how it plans to address the imminent $500 million note maturity since the company announced last month the appointment of Admiralty Harbour as a financial advisor for “evaluating its capital structure, assessing liquidity position and exploring options for the maturing notes”.
As first reported by Reorg, the Hong Kong-listed solar farm developer had also engaged Milbank as legal advisor to assist a likely notes restructuring. Admiralty Harbour had pitched various options to the company, including potentially launching a distressed exchange offer for the notes while Deloitte had been advising its Hong Kong-listed parent company GCL-Poly Energy in an informal capacity, as reported.
However, such an exchange could still be challenging given GCL New Energy’s tight liquidity as it likely needs to offer a significant amount of upfront cash in order to garner sufficient noteholders’ support while ensuring it can repay holdout noteholders, two of the sources noted. GCL New Energy reported an unrestricted cash level of just $95.3 million as of June 30 according to its 2020 interim report.
As detailed in Reorg’s legal analysis, if holdout creditor risk was a concern for the company in a distressed exchange scenario, another option would be to use a scheme of arrangement - likely filed in Bermuda given the incorporation of the issuer - to facilitate an exchange or some other type of restructuring of the notes.
Meanwhile, sources also noted that GCL New Energy itself lacks any meaningful offshore assets that could be pledged to noteholders, making a successful note exchange more challenging. As of June 30, the company owned and operated 208 solar power plants across 25 provinces in China with a total installed capacity of approximately 7.0 GW, according to the 2020 interim report.
In addition to the solar assets predominantly located onshore and encumbered by project level loans, GCL New Energy had government subsidy receivables totalling RMB 9.17 billion as of end-June including RMB 2.42 billion listed in the first seven batches of China’s national renewable energy subsidy catalogue.
As reported, the company’s management had previously hoped that the longstanding renewable energy subsidy backlog could be resolved soon through a special bond issuance reportedly being considered by the government. Meanwhile, any positive progress could also help GCL New Energy negotiate better prices in its ongoing asset disposals, management previously guided.
In the past two weeks, GCL New Energy had sold a total of 13 solar power plants with an aggregate capacity of 391 MW to state-owned firm Xuzhou State Investment & Environmental Protection Energy with total net cash proceeds from the sale expected to be about RMB 1.445 billion ($219.5 million), which the company said will be used for debt repayments, as reported. The sale is subject to certain conditions precedent.
The company also entered into a third phase agreement last week to sell an additional 18 solar power plants with an aggregate installed capacity of about 430MW to two entities jointly held by China Huaneng Group and ICBC Financial Assets Investment, as reported. The third batch disposal, together with the 403 MW second batch sale to Huaneng announced in September, is still pending dispatch of circular and shareholders’ approval.
The total net proceeds of RMB 3.384 billion from the second and third batch sale is expected to be used to cover an outstanding RMB 2.8 billion bridge loan provided by Huaneng and originally due in November according to two buyside sources. GCL New Energy had previously told investors that the maturity of the loan could be extended if the planned asset disposals could not be closed before then, as reported.
SC Lowy and GCL New Energy did not respond to requests for comment.
GCL New Energy’s capital structure is below:
(Click HERE to enlarge)
--Simon Lee
This article is an example of the content you may receive if you subscribe to a product of Reorg Research, Inc. or one of its affiliates (collectively, “Reorg”). The information contained herein should not be construed as legal, investment, accounting or other professional services advice on any subject. Reorg, its affiliates, officers, directors, partners and employees expressly disclaim all liability in respect to actions taken or not taken based on any or all the contents of this publication. Copyright © 2024 Reorg Research, Inc. All rights reserved.