Reorg on the Record: Trust issues… (02/23/22)
Written by Stephen Aldred, managing editor, Asia Core Credit | Current volatility in high-yield bond prices of Chinese real estate developers points to a loss of trust in information sources the market previously used to gauge the truth.
It’s the natural result of a steady stream of previously undisclosed private notes and guarantees, revelations of defective capital structures and resignations of auditors. But more fundamental to the problem is companies themselves being economical with the truth.
Zhenro Properties is the latest developer to execute a U-turn on previous public guidance. The strong suspicion is it won’t be the last.
Logically, any company that is perceived as having hidden private debt, or to have guided that it could meet a maturity when it could not, or could not meet a maturity when it could, should face censure of the markets when it tries to raise new notes.
But it’s debatable whether the current loss of trust will persist.
Investors could simply refuse to lend to any developer they consider has deliberately misguided the market on its intentions.
However, they could look on current events as a one-off, driven by regulators in Beijing. In that scenario, investors will see a set of Chinese developers chastened by their experience, reformed, restructured and, most importantly, with unencumbered offshore assets ready to pay 12% for three-year money.
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Our Asia teams are delivering the most in-depth data, analysis and reporting on hundreds of credits that are either stressed, distressed, performing, going through restructuring or post-reorg. Below is a glimpse into our editorial offering:
Shimao Group
Chinese property developer Shimao Group Holdings Ltd. is in the midst of negotiating with Citic Trust on a repayment plan relating to an RMB 6.2 billion ($978.8 million) outstanding trust loan for which RMB 1.4 billion was due Feb. 17. Reorg has further reviewed documents on the trust loan and various company disclosures – there are indications that use of proceeds from the trust financing (original size of RMB 8.7 billion), while ostensibly meant for the underlying Shenzhen Shenggang/Longgang project’s development and construction capex, may have been redirected to another trust financing company and/ or offshore. » Continue Reading
Garuda
Irfan Setiaputra, CEO of Indonesian flag-carrier PT Garuda Indonesia Tbk, told Reorg that the airline’s restructuring proposal features a 19% recovery rate for lessors and sukuk holders, comprising two-thirds in 10-year 7.25% bonds and one-third in equity. However, restructuring terms differ across creditor groups and debt claims, Setiaputra said. » Continue Reading
Peking University Founder Group
Justice Harris’ recent decision dismissing interlocutory applications lodged by the Mainland administrator Peking University Founder Group Co. Ltd. (PUFG), attempting to stay keepwell proceedings in the Hong Kong Court, provides more guidance as to potential issues keepwell beneficiaries may need to be cognizant of in order to utilize the protection offered by the so-called credit enhancement used by some Chinese companies to secure their offshore borrowings. » Continue Reading
Srinagar Banihal Expressway
Asset reconstruction companies (ARCs) are in talks with lenders to Srinagar Banihal Expressway Ltd. – including Jammu & Kashmir Bank, Punjab National Bank and Union Bank of India – ahead of potential auctions for the company’s nonperforming loans which are expected to kick off as soon as next week, said three sources with knowledge. » Continue Reading
Srei Group
A second forensic audit report conducted from April 1, 2016, to Sept. 30, 2020, by chartered accountant firm Saxena & Saxena, on INR 11.798 billion ($157.3 million) loans disbursed by Srei Infrastructure Finance Ltd. (SIFL) to IL&FS Group, has found the loans worth INR 10.798 billion “were not disbursed in the normal course of business,” and alleged round-tripping of funds, according to two sources with direct knowledge. » Continue Reading
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