Reorg Asia Bi-Weekly
Bain and Busted Airlines (June 29 - July 13)
Sun 07/12/2020 20:04 PM
From Reorg Asia’s Managing Editors
In this column, managing editors Stephen Aldred and Shasha Dai will take turns writing about trends in high yield, distressed debt, restructuring and bankruptcy in major Asian markets including China, Southeast Asia, India and Australia. For questions or comments, contact Stephen at saldred@reorg.com and Shasha at sdai@reorg.com. Send your people and fund news to asiaeditorial@reorg.com.
It’s no revelation that airlines are among the hardest hit sectors globally amid Covid-19. But the fact that Bain Capital is on both sides of two distressed airlines – as buyer of Virgin Australia Holdings and owner of Trans Maldivian Airways - is somewhat unique, and largely unremarked.
The lack of coverage of Trans Maldivian’s distress is largely because it’s a relatively small deal with a tight knit bank group in a frontier market – the Maldives.
Trans Maldivian missed a $6.8 million amortization payment on its originally $305 million five year senior secured leveraged buyout debt, but has signed a standstill agreement with its lenders such that they will not enforce on the missed payment, as Reorg reported last week. The standstill is slated to end at the end of August.
Bain acquired the asset from Blackstone in 2018 and found willing bank lenders, despite an ongoing national state of emergency. Lenders were enticed into the deal with political risk insurance coverage, though only two – Deutsche Bank and Nomura - went the extra mile and bought credit insurance, as Reorg reported.
That makes sense when you consider the airline’s performance as a private equity asset. Blackstone acquired Trans Maldivian in 2013 and quickly recapped the target - not once, but twice - recouping all its invested equity within two years. The airline, which operates a fleet of seaplanes taking tourists between islands in the iconic holiday destination, had no working capital lines because it sloughed off so much cash.
Then along came Covid-19. Trans Maldivian’s fleet of seaplanes is now grounded, and revenue – EBITDA was $68 million at the time of the buyout – is practically zero.
News of Trans Maldivian signing a standstill agreement with bank lenders emerged the same week that Broad Peak and Tor Investment were revealed as applicants to the Australian Government Takeovers Panel, claiming that Administrators for Virgin Australia Holdings had conducted a flawed process that precluded an alternative Deed of Company Arrangement being presented at the second creditors’ meeting, scheduled for mid-August.
Trans Maldivian had been in talks with lenders since early in the pandemic, as reported, but as talks continue and with revenue unlikely to return to anywhere close to pre-Covid levels soon, hedge funds and private equity buyers are now beginning to circle the stricken credit.
Underbidder on the Trans Maldivian buyout in 2017/2018 was private equity firm PAG Asia Capital. Other firms invited to bid in the early stages of the buyout included Fosun Group and CITIC Group. Bain Capital’s minority co-investor – Shenzhen Tempus Global Business Services – is a Chinese company focused on air ticketing and travel management.
Meanwhile, in fending off an interlocutory application from Broad Peak and Tor to the Federal Court of Australia, in which the applicants sought access to confidential sales documents, administrators for Virgin styled the holders of A$300 million unsecured notes as “disappointed bidders in the sale process” with “no relevant interest in varying or setting aside orders”.
While Broad Peak and Tor have withdrawn their application to the Australian Government Takeovers Panel, they plan to file an alternative DOCA to Bain at Virgin Australia’s second creditors’ meeting.
Bain now faces battles with underbidders on two distressed airlines – one as owner, one as prospective buyer.
--Stephen Aldred, Managing Editor - Asia
Reorg Asia Watchlist
Below is a list of companies or credits worth watching that face looming maturities, upcoming court proceedings or creditor campaigns. For questions or comments, please send email to questions@reorg.com.
AUSTRALIA
Virgin Australia
Justice Middleton of the Australian Federal Court on July 10 dismissed with costs the interlocutory application of unsecured noteholders in the Virgin Australia administration - Broad Peak Investment and Tor Investment Management - seeking to vary non-publication and confidentiality orders, at a hearing which Reorg attended. Justice Middleton, in dismissing the application, however cautioned the administrators to provide information promptly to avoid potential future litigation around the Deed of Company Arrangement (DOCA) process.
Read Reorg’s coverage of Virgin Australia HERE.
CHINA
Tahoe Group
Tahoe Group has engaged Houlihan Lokey and CITIC Securities as financial advisers to restructure its offshore and onshore debt as the distressed Chinese property company, which defaulted onshore on its RMB 1.5 billion ($212 million) 7.5% medium term notes (“17 Tahoe MTN 001”) when they matured on July 6, faces two coupon payments totalling over $50.9 million under its offshore bonds this month. It has started one-on-one conversation with holders of the defaulted notes, collecting their feedback on an at-least-three-year termout plan.
Read Reorg’s coverage of Tahoe HERE.
Shandong Ruyi Technology Group / SMCP SA / Lycra Company
Ruyi will likely not be able to redeem “18 Ruyi 01,” an RMB 1.5 billion 7.9% 5-year corporate bond due 2023 that is puttable Sept. 18, 2020. Small holders of the bond are organizing and evaluating their options including potential legal action against bookrunner Northeast Securities. European TopSoho, the parent company of Ruyi’s French apparel subsidiary SMCP, has belatedly made a €2.5 million interest payment that was originally due June 22 under its €250 million 4% convertible bonds due September 2021.
Read Reorg’s coverage of Shandong Ruyi HERE, Lycra HERE, SMCP SA HERE.
HNA Group
HNA affiliate Hong Kong Airlines has sent a notice informing holders of its $683 million 7.125% perpetual securities that it has elected to defer a $23 million coupon payment due July 26 based on certain bond terms.
Read Reorg’s coverage of HNA / Hong Kong Airlines HERE.
Yihua Enterprise
Some noteholders of Yihua Enterprise’s defaulted $250 million 8.5% senior notes due Oct. 23, 2020 are planning to take legal action against the company in the U.S. The move comes after a group of major noteholders who held over 25% in principal amount accelerated the notes last month while Yihua has failed to provide any concrete repayment plan ever since it missed a $10.6 million coupon payment on the notes in April.
Read Reorg’s coverage of Yihua Enterprise HERE.
Peking University Founder Group
Potential strategic investors have started the second round of due diligence on Peking University Founder Group. Zhuhai SASAC and a Shenzhen-based state-owned enterprise are among the potential strategic investors.
Read Reorg’ coverage of PKU Founder HERE.
Dalian Wanda Group
Dalian Wanda Group has told multiple investors that it has not provided a guarantee for its U.S. listed subsidiary AMC Entertainment’s debts, which total around $5 billion, and that it would not be responsible for AMC’s debts if the U.S. company went into bankruptcy. Dalian has invested a total of $800 million in AMC and has already recovered the initial capital investment by collecting a total of $830 million through dividends and stake disposals.
Read Reorg’s coverage of Dalian Wanda HERE.
Shandong Chenming Paper
Shandong Chenming Paper Holdings’ announcement in June of its intention not to exercise the call option under its RMB 1 billion ($141.5 million) 6.8% 3-plus-N year bond “17 Luchenming MTN 001” that is callable on July 12 may lead to credit rating downgrades, deepening its refinancing difficulty, said buyside sources. The company is also part of the Shandong debt guarantee circle, with Shandong Yuhuang Chemical being a client of Chenming’s financial leasing business to which Chenming has provided more than RMB 300 million financing.
Read Reorg’ coverage of Chenming Paper HERE.
INDIA
Indiabulls Housing Finance
Indiabulls Housing Finance Ltd. has raised as much as INR 22 billion ($294 million) from Oaktree Capital Management against a pool of loans to real estate developers worth INR 40 billion. Oaktree will lend INR 20 billion-INR 22 billion to Indiabulls at an internal rate of return (IRR) of around 20%.
Read Reorg’s coverage of Indiabulls Housing Finance HERE.
Jain Irrigation
An ad hoc group formed by holders of the defaulted $200 million 7.125% due Feb. 2022 notes of micro-irrigation company Jain Irrigation Systems have appointed the UK unit of Deloitte Touche Tohmatsu Ltd. as financial advisor. As part of restructuring talks, onshore lenders advised by Brescon Advisors Pvt. Ltd. have asked company management to settle with the bondholders and other lenders to its foreign entities to avoid corporate guarantees extended to foreign subsidiaries being invoked, said one of the first three sources with knowledge and a fourth source familiar with the matter.
Read Reorg’s coverage of Jain Irrigation HERE.
SOUTHEAST ASIA
PT Modernland Realty Tbk
Indonesian real estate developer PT Modernland Realty Tbk’s (MDLN), which delayed the principal repayment due July 7 under its IDR 150 billion ($10.6 million) 12.5% Phase I Series B notes, has initiated talks with financial advisors for a potential restructuring of its debt.
Read Reorg’s coverage of MDLN HERE.
PT Titan Infra Energy
Lenders to Indonesian coal infrastructure company PT Titan Infra Energy are in talks to appoint a financial advisor for a potential restructuring. TIE had appointed Borelli Walsh as financial advisor. Meanwhile, parties have filed lawsuits against TIE, its related companies and Geo Energy Resources Ltd subsidiaries over a coal purchase contract.
Read Reorg’s coverage of TIE HERE.
From Our Financial & Legal Analysts
Below are links to reports written this week by our financial and legal analysts.
Agritrade - LEGAL ANALYSIS: Bermuda Court Provides Useful Guidance on Provisional Liquidation Applications in Agritrade Resources Ruling; Rejects “Soft Touch” Powers Including Ability to Remove Directors
Qantas Airways -LEGAL ANALYSIS: Australian Court Rules Fair Work Commission Has Jurisdiction to Hear Qantas, Jetstar Engineer Workers ‘Stand Down’ Dispute as to Whether ‘Useful Work’ Exists
Atlas Resources - NEW COVERAGE: Atlas Resources PKPU to be Extended, Hearing Scheduled Tomorrow; Total Verified Claims IDR 5.7T; Noble Largest Creditor, Around $130M Outstanding
Yihua Enterprise Group - LEGAL ANALYSIS: Yihua Offshore Bondholders Plan to Pursue Legal Action in U.S.; Yihua Lifestyle Bondholders Pass Maturity Extension Proposal
Shandong Ruyi - TEAR SHEET UPDATE: Shandong Ruyi Technology FY19 Revenue Up 1.5% YoY to RMB 34.8B, Gross Profit Margin Down 2.2 p.p. to 23.9% Due to Decrease in Raw Material Prices; RMB2.9B Onshore Bonds Due in 2020
Modernland Realty - ANALYSIS: Non-Payment Under Modernland’s IDR 150B Bonds Risks Potential Cross Default Under USD Notes; Co. Lacks Headroom to Incur Ratio Indebtedness; Permitted Indebtedness Baskets Could be Utilised
ANALYSIS: IJM Focus on HLT Restructuring Involving Lim Family Cooperation, Commitment Appears to Lack Resolve Given No Response to Proposals; Fraud Mechanisms Outlined
Fundraising and People Move News
Send your people and fund news to asiaeditorial@reorg.com.
KKR & Co has raised $10 billion of a planned $12.5 billion fourth Asian investment fund, said a source with direct knowledge. The fund was launched late in 2019, and has achieved a first close within seven months, the source added. KKR’s $9.3 billion 2017 vintage Asian Fund III was the largest private equity fund raised for Asia at the time of its close.
Apollo Global Management announced on July 6 the formation of Apollo Strategic Origination Partners with Mubadala Investment Co, a new origination platform expected to provide $12 billion in financings over the next three years, targeting transactions of around $1 billion to help meet growing corporate demand for scaled direct origination solutions.
Charlie Clayton-Payne has rejoined Hogan Lovells as a partner in its Corporate & Finance practice, based in its Singapore office. He joins from Harneys in Hong Kong but was previously based in Hogan Lovells' Singapore office until Feb. 2019. He currently advises borrowers and financial institutions on a wide variety of structures, including cross-border sponsor-backed acquisition financings, capital call facilities, syndicated secured lending, structured lending, leveraged finance, and debt restructurings.
Week Ahead
Below is a list of events on the Reorg Asia Calendar for the next two weeks
For questions and comments about our content, please contact questions@reorg.com. For inquiries about trial or subscription, please contact sales@reorg.com.
In this column, managing editors Stephen Aldred and Shasha Dai will take turns writing about trends in high yield, distressed debt, restructuring and bankruptcy in major Asian markets including China, Southeast Asia, India and Australia. For questions or comments, contact Stephen at saldred@reorg.com and Shasha at sdai@reorg.com. Send your people and fund news to asiaeditorial@reorg.com.
It’s no revelation that airlines are among the hardest hit sectors globally amid Covid-19. But the fact that Bain Capital is on both sides of two distressed airlines – as buyer of Virgin Australia Holdings and owner of Trans Maldivian Airways - is somewhat unique, and largely unremarked.
The lack of coverage of Trans Maldivian’s distress is largely because it’s a relatively small deal with a tight knit bank group in a frontier market – the Maldives.
Trans Maldivian missed a $6.8 million amortization payment on its originally $305 million five year senior secured leveraged buyout debt, but has signed a standstill agreement with its lenders such that they will not enforce on the missed payment, as Reorg reported last week. The standstill is slated to end at the end of August.
Bain acquired the asset from Blackstone in 2018 and found willing bank lenders, despite an ongoing national state of emergency. Lenders were enticed into the deal with political risk insurance coverage, though only two – Deutsche Bank and Nomura - went the extra mile and bought credit insurance, as Reorg reported.
That makes sense when you consider the airline’s performance as a private equity asset. Blackstone acquired Trans Maldivian in 2013 and quickly recapped the target - not once, but twice - recouping all its invested equity within two years. The airline, which operates a fleet of seaplanes taking tourists between islands in the iconic holiday destination, had no working capital lines because it sloughed off so much cash.
Then along came Covid-19. Trans Maldivian’s fleet of seaplanes is now grounded, and revenue – EBITDA was $68 million at the time of the buyout – is practically zero.
News of Trans Maldivian signing a standstill agreement with bank lenders emerged the same week that Broad Peak and Tor Investment were revealed as applicants to the Australian Government Takeovers Panel, claiming that Administrators for Virgin Australia Holdings had conducted a flawed process that precluded an alternative Deed of Company Arrangement being presented at the second creditors’ meeting, scheduled for mid-August.
Trans Maldivian had been in talks with lenders since early in the pandemic, as reported, but as talks continue and with revenue unlikely to return to anywhere close to pre-Covid levels soon, hedge funds and private equity buyers are now beginning to circle the stricken credit.
Underbidder on the Trans Maldivian buyout in 2017/2018 was private equity firm PAG Asia Capital. Other firms invited to bid in the early stages of the buyout included Fosun Group and CITIC Group. Bain Capital’s minority co-investor – Shenzhen Tempus Global Business Services – is a Chinese company focused on air ticketing and travel management.
Meanwhile, in fending off an interlocutory application from Broad Peak and Tor to the Federal Court of Australia, in which the applicants sought access to confidential sales documents, administrators for Virgin styled the holders of A$300 million unsecured notes as “disappointed bidders in the sale process” with “no relevant interest in varying or setting aside orders”.
While Broad Peak and Tor have withdrawn their application to the Australian Government Takeovers Panel, they plan to file an alternative DOCA to Bain at Virgin Australia’s second creditors’ meeting.
Bain now faces battles with underbidders on two distressed airlines – one as owner, one as prospective buyer.
--Stephen Aldred, Managing Editor - Asia
Reorg Asia Watchlist
Below is a list of companies or credits worth watching that face looming maturities, upcoming court proceedings or creditor campaigns. For questions or comments, please send email to questions@reorg.com.
AUSTRALIA
Virgin Australia
Justice Middleton of the Australian Federal Court on July 10 dismissed with costs the interlocutory application of unsecured noteholders in the Virgin Australia administration - Broad Peak Investment and Tor Investment Management - seeking to vary non-publication and confidentiality orders, at a hearing which Reorg attended. Justice Middleton, in dismissing the application, however cautioned the administrators to provide information promptly to avoid potential future litigation around the Deed of Company Arrangement (DOCA) process.
Read Reorg’s coverage of Virgin Australia HERE.
CHINA
Tahoe Group
Tahoe Group has engaged Houlihan Lokey and CITIC Securities as financial advisers to restructure its offshore and onshore debt as the distressed Chinese property company, which defaulted onshore on its RMB 1.5 billion ($212 million) 7.5% medium term notes (“17 Tahoe MTN 001”) when they matured on July 6, faces two coupon payments totalling over $50.9 million under its offshore bonds this month. It has started one-on-one conversation with holders of the defaulted notes, collecting their feedback on an at-least-three-year termout plan.
Read Reorg’s coverage of Tahoe HERE.
Shandong Ruyi Technology Group / SMCP SA / Lycra Company
Ruyi will likely not be able to redeem “18 Ruyi 01,” an RMB 1.5 billion 7.9% 5-year corporate bond due 2023 that is puttable Sept. 18, 2020. Small holders of the bond are organizing and evaluating their options including potential legal action against bookrunner Northeast Securities. European TopSoho, the parent company of Ruyi’s French apparel subsidiary SMCP, has belatedly made a €2.5 million interest payment that was originally due June 22 under its €250 million 4% convertible bonds due September 2021.
Read Reorg’s coverage of Shandong Ruyi HERE, Lycra HERE, SMCP SA HERE.
HNA Group
HNA affiliate Hong Kong Airlines has sent a notice informing holders of its $683 million 7.125% perpetual securities that it has elected to defer a $23 million coupon payment due July 26 based on certain bond terms.
Read Reorg’s coverage of HNA / Hong Kong Airlines HERE.
Yihua Enterprise
Some noteholders of Yihua Enterprise’s defaulted $250 million 8.5% senior notes due Oct. 23, 2020 are planning to take legal action against the company in the U.S. The move comes after a group of major noteholders who held over 25% in principal amount accelerated the notes last month while Yihua has failed to provide any concrete repayment plan ever since it missed a $10.6 million coupon payment on the notes in April.
Read Reorg’s coverage of Yihua Enterprise HERE.
Peking University Founder Group
Potential strategic investors have started the second round of due diligence on Peking University Founder Group. Zhuhai SASAC and a Shenzhen-based state-owned enterprise are among the potential strategic investors.
Read Reorg’ coverage of PKU Founder HERE.
Dalian Wanda Group
Dalian Wanda Group has told multiple investors that it has not provided a guarantee for its U.S. listed subsidiary AMC Entertainment’s debts, which total around $5 billion, and that it would not be responsible for AMC’s debts if the U.S. company went into bankruptcy. Dalian has invested a total of $800 million in AMC and has already recovered the initial capital investment by collecting a total of $830 million through dividends and stake disposals.
Read Reorg’s coverage of Dalian Wanda HERE.
Shandong Chenming Paper
Shandong Chenming Paper Holdings’ announcement in June of its intention not to exercise the call option under its RMB 1 billion ($141.5 million) 6.8% 3-plus-N year bond “17 Luchenming MTN 001” that is callable on July 12 may lead to credit rating downgrades, deepening its refinancing difficulty, said buyside sources. The company is also part of the Shandong debt guarantee circle, with Shandong Yuhuang Chemical being a client of Chenming’s financial leasing business to which Chenming has provided more than RMB 300 million financing.
Read Reorg’ coverage of Chenming Paper HERE.
INDIA
Indiabulls Housing Finance
Indiabulls Housing Finance Ltd. has raised as much as INR 22 billion ($294 million) from Oaktree Capital Management against a pool of loans to real estate developers worth INR 40 billion. Oaktree will lend INR 20 billion-INR 22 billion to Indiabulls at an internal rate of return (IRR) of around 20%.
Read Reorg’s coverage of Indiabulls Housing Finance HERE.
Jain Irrigation
An ad hoc group formed by holders of the defaulted $200 million 7.125% due Feb. 2022 notes of micro-irrigation company Jain Irrigation Systems have appointed the UK unit of Deloitte Touche Tohmatsu Ltd. as financial advisor. As part of restructuring talks, onshore lenders advised by Brescon Advisors Pvt. Ltd. have asked company management to settle with the bondholders and other lenders to its foreign entities to avoid corporate guarantees extended to foreign subsidiaries being invoked, said one of the first three sources with knowledge and a fourth source familiar with the matter.
Read Reorg’s coverage of Jain Irrigation HERE.
SOUTHEAST ASIA
PT Modernland Realty Tbk
Indonesian real estate developer PT Modernland Realty Tbk’s (MDLN), which delayed the principal repayment due July 7 under its IDR 150 billion ($10.6 million) 12.5% Phase I Series B notes, has initiated talks with financial advisors for a potential restructuring of its debt.
Read Reorg’s coverage of MDLN HERE.
PT Titan Infra Energy
Lenders to Indonesian coal infrastructure company PT Titan Infra Energy are in talks to appoint a financial advisor for a potential restructuring. TIE had appointed Borelli Walsh as financial advisor. Meanwhile, parties have filed lawsuits against TIE, its related companies and Geo Energy Resources Ltd subsidiaries over a coal purchase contract.
Read Reorg’s coverage of TIE HERE.
From Our Financial & Legal Analysts
Below are links to reports written this week by our financial and legal analysts.
Agritrade - LEGAL ANALYSIS: Bermuda Court Provides Useful Guidance on Provisional Liquidation Applications in Agritrade Resources Ruling; Rejects “Soft Touch” Powers Including Ability to Remove Directors
Qantas Airways -LEGAL ANALYSIS: Australian Court Rules Fair Work Commission Has Jurisdiction to Hear Qantas, Jetstar Engineer Workers ‘Stand Down’ Dispute as to Whether ‘Useful Work’ Exists
Atlas Resources - NEW COVERAGE: Atlas Resources PKPU to be Extended, Hearing Scheduled Tomorrow; Total Verified Claims IDR 5.7T; Noble Largest Creditor, Around $130M Outstanding
Yihua Enterprise Group - LEGAL ANALYSIS: Yihua Offshore Bondholders Plan to Pursue Legal Action in U.S.; Yihua Lifestyle Bondholders Pass Maturity Extension Proposal
Shandong Ruyi - TEAR SHEET UPDATE: Shandong Ruyi Technology FY19 Revenue Up 1.5% YoY to RMB 34.8B, Gross Profit Margin Down 2.2 p.p. to 23.9% Due to Decrease in Raw Material Prices; RMB2.9B Onshore Bonds Due in 2020
Modernland Realty - ANALYSIS: Non-Payment Under Modernland’s IDR 150B Bonds Risks Potential Cross Default Under USD Notes; Co. Lacks Headroom to Incur Ratio Indebtedness; Permitted Indebtedness Baskets Could be Utilised
ANALYSIS: IJM Focus on HLT Restructuring Involving Lim Family Cooperation, Commitment Appears to Lack Resolve Given No Response to Proposals; Fraud Mechanisms Outlined
Fundraising and People Move News
Send your people and fund news to asiaeditorial@reorg.com.
KKR & Co has raised $10 billion of a planned $12.5 billion fourth Asian investment fund, said a source with direct knowledge. The fund was launched late in 2019, and has achieved a first close within seven months, the source added. KKR’s $9.3 billion 2017 vintage Asian Fund III was the largest private equity fund raised for Asia at the time of its close.
Apollo Global Management announced on July 6 the formation of Apollo Strategic Origination Partners with Mubadala Investment Co, a new origination platform expected to provide $12 billion in financings over the next three years, targeting transactions of around $1 billion to help meet growing corporate demand for scaled direct origination solutions.
Charlie Clayton-Payne has rejoined Hogan Lovells as a partner in its Corporate & Finance practice, based in its Singapore office. He joins from Harneys in Hong Kong but was previously based in Hogan Lovells' Singapore office until Feb. 2019. He currently advises borrowers and financial institutions on a wide variety of structures, including cross-border sponsor-backed acquisition financings, capital call facilities, syndicated secured lending, structured lending, leveraged finance, and debt restructurings.
Week Ahead
Below is a list of events on the Reorg Asia Calendar for the next two weeks
For questions and comments about our content, please contact questions@reorg.com. For inquiries about trial or subscription, please contact sales@reorg.com.
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.