Dr. Peng Telecom & Media Group
Dr. Peng Ad Hoc Noteholders Send Legal Letter to Company Requesting Updated Financials, Clarity on Debt Structure
Tue 04/07/2020 23:31 PM
The ad hoc group of noteholders representing over 34% of Dr. Peng Telecom and Media Group’s $410.25 million 5.05% senior notes due June 1 have sent a letter through their legal advisor Linklaters to the company requesting updated financials and clarity around its debt structure, according to two noteholder sources and a source familiar with the matter.
Among the noteholders’ concerns is details of the $150 million private notes issued to Haitong International Securities as announced by Dr. Peng in December last year, two of the sources said. The private notes were issued by Pacific Light Data Communication (PLDC), the 88.4% owned project company in the transpacific undersea cable system co-built with Google and Facebook.
While it is understood that Dr. Peng has used the notes to replace a $150 million five-year loan from Natixis that partly funded the project, it remains unclear whether the Haitong facility was backed by any share pledges or even secured by its 66.67% interest in the cable project as collateral, the two sources said.
The structure of the Haitong facility is important because the undersea cable, valued at $350 million to $400 million at cost and set to be completed later this year, is expected to provide much of the recovery value for the $410 million offshore notes in a potential restructuring as the notes were issued by Dr. Peng Telecom’s wholly-owned offshore subsidiary Dr. Peng Holding Hong Kong, which indirectly holds interest in the cable through PLDC, the sources said.
Dr. Peng Holding Hong Kong separately obtained a $100 million credit facility from the little-known Merdeka Opportunity Fund in December, but there has been no confirmation from the company whether it has been drawn down or if it is also secured by the cable project, the sources said.
Noteholders are also seeking clarity on the financials and ownership strcuture of Dr. Peng’s internet data centre business in China in order to come up with a more accurate valuation, the two sources said, adding that while the segment, thought to be worth at least RMB 3 billion ($425.6 million) by some noteholders and considered a key growth driver for the company, transparency is low.
Dr. Peng reported a 29% year-over-year growth in operating revenue to RMB 764.9 million for the internet data centre segment in the first half of 2019, compared with a 22% decline for its broadband business. The company said in its 2019 interim report that it owns data centres in top tier cities with a total gross area of 0.2 million sq.m. that house 330,000 server racks in around 30,000 cabinets.
The Chinese telecom company has started negotiations with holders of its RMB 1 billion 7% onshore corporate bonds due 2023, puttable April 25 (“18 Dr. Peng”) and are persuading them to withdraw their exercised put options, while some RMB 997.7 million had been registered for the put as reported. Some onshore bondholders have requested the company to provide credit enhancement measures including adding collaterals but Dr. Peng has yet to come up with any concrete plans.
Although the company had warned in a stock exchange announcement that there was material uncertainty around its ability to raise the necessary funds for the put, the onshore bonds, now indicated in the low 80s, saw upticks in pricing in the week approaching the put option registration deadline on April 3, two onshore credit investors said, noting it was driven by small trades with the belief that Dr. Peng would be able to repay smaller positions in a private settlement secenio.
As reported in March, Alverez & Marsal, the financial advisor of Dr. Peng, had sounded out several major noteholders on a potential consent solicitation to extend the maturing $410 offshore notes with proposed incentives such as an increased coupon rate and upfront cash payment, while some noteholders had started organising a 34% blocking position as leverage in the negotiation.
In addition to the RMB 1 billion onshore put option on April 25 and the $410 million offshore bond maturity on June 1, Dr. Peng also has a RMB 1 billion onshore bond putable on June 16.
With just RMB 1.38 billion cash as of end-September, 2019, Dr. Peng has so far only sold its U.S. investment, Texas-based telecom company Entouch Systems for an undisclosed amount, but the transaction is only expected to close later this year subject to regulatory approval. Dr. Peng previously said the asset was worth around $100 million.
The Shanghai-listed company also planned to issue RMB 2 billion private bonds and separately raise up to RMB 2.462 billion through a share placement to four investors including an entity owned by the current largest shareholder Pengbo Industry, but both plans are still pending regulatory approvals.
Dr. Peng did not respond to a request for comment. Linklaters declined to comment.
Dr. Peng’s capital structure as of Sept. 30, 2019:
--Simon Lee
Among the noteholders’ concerns is details of the $150 million private notes issued to Haitong International Securities as announced by Dr. Peng in December last year, two of the sources said. The private notes were issued by Pacific Light Data Communication (PLDC), the 88.4% owned project company in the transpacific undersea cable system co-built with Google and Facebook.
While it is understood that Dr. Peng has used the notes to replace a $150 million five-year loan from Natixis that partly funded the project, it remains unclear whether the Haitong facility was backed by any share pledges or even secured by its 66.67% interest in the cable project as collateral, the two sources said.
The structure of the Haitong facility is important because the undersea cable, valued at $350 million to $400 million at cost and set to be completed later this year, is expected to provide much of the recovery value for the $410 million offshore notes in a potential restructuring as the notes were issued by Dr. Peng Telecom’s wholly-owned offshore subsidiary Dr. Peng Holding Hong Kong, which indirectly holds interest in the cable through PLDC, the sources said.
Dr. Peng Holding Hong Kong separately obtained a $100 million credit facility from the little-known Merdeka Opportunity Fund in December, but there has been no confirmation from the company whether it has been drawn down or if it is also secured by the cable project, the sources said.
Noteholders are also seeking clarity on the financials and ownership strcuture of Dr. Peng’s internet data centre business in China in order to come up with a more accurate valuation, the two sources said, adding that while the segment, thought to be worth at least RMB 3 billion ($425.6 million) by some noteholders and considered a key growth driver for the company, transparency is low.
Dr. Peng reported a 29% year-over-year growth in operating revenue to RMB 764.9 million for the internet data centre segment in the first half of 2019, compared with a 22% decline for its broadband business. The company said in its 2019 interim report that it owns data centres in top tier cities with a total gross area of 0.2 million sq.m. that house 330,000 server racks in around 30,000 cabinets.
The Chinese telecom company has started negotiations with holders of its RMB 1 billion 7% onshore corporate bonds due 2023, puttable April 25 (“18 Dr. Peng”) and are persuading them to withdraw their exercised put options, while some RMB 997.7 million had been registered for the put as reported. Some onshore bondholders have requested the company to provide credit enhancement measures including adding collaterals but Dr. Peng has yet to come up with any concrete plans.
Although the company had warned in a stock exchange announcement that there was material uncertainty around its ability to raise the necessary funds for the put, the onshore bonds, now indicated in the low 80s, saw upticks in pricing in the week approaching the put option registration deadline on April 3, two onshore credit investors said, noting it was driven by small trades with the belief that Dr. Peng would be able to repay smaller positions in a private settlement secenio.
As reported in March, Alverez & Marsal, the financial advisor of Dr. Peng, had sounded out several major noteholders on a potential consent solicitation to extend the maturing $410 offshore notes with proposed incentives such as an increased coupon rate and upfront cash payment, while some noteholders had started organising a 34% blocking position as leverage in the negotiation.
In addition to the RMB 1 billion onshore put option on April 25 and the $410 million offshore bond maturity on June 1, Dr. Peng also has a RMB 1 billion onshore bond putable on June 16.
With just RMB 1.38 billion cash as of end-September, 2019, Dr. Peng has so far only sold its U.S. investment, Texas-based telecom company Entouch Systems for an undisclosed amount, but the transaction is only expected to close later this year subject to regulatory approval. Dr. Peng previously said the asset was worth around $100 million.
The Shanghai-listed company also planned to issue RMB 2 billion private bonds and separately raise up to RMB 2.462 billion through a share placement to four investors including an entity owned by the current largest shareholder Pengbo Industry, but both plans are still pending regulatory approvals.
Dr. Peng did not respond to a request for comment. Linklaters declined to comment.
Dr. Peng’s capital structure as of Sept. 30, 2019:
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.