UPDATE 9: 8:21 p.m. ET 4/20/2023
: Sunac China Holdings Ltd. announced
to the Hong Kong stock exchange on Thursday, April 20, that as of the same day, holders representing over 75% of the aggregate outstanding principal amount of $9.1 billion existing debt have submitted letters to accede to the RSA.
As certain creditors require additional time to complete the internal processes of acceding to the RSA, the company agreed to extend the consent fee deadline to May 4 at 5 p.m., Hong Kong time, from April 20, the announcement shows.
, the company offers to restructure its $7.704 billion USD senior notes and $1.344 billion other offshore debt alongside interests into $1 billion nine-year convertible bonds that can be converted into Sunac China shares, up to $1.75 billion five-year mandatory convertible bonds also into Sunac China shares, options to exchange into Sunac Services shares and at least $6 billion new USD notes with tenors ranging from two to nine years.
UPDATE 8: Alvarez & Marsal, Latham & Watkins Ask Sunac China Offshore Creditors Not to Sign RSA, to Demand Improvement; Co.’s Proposed Equity Conversion Prices Too High, Plan Lacks CollateralUPDATE 8: 7:14 a.m. ET 4/18/2023
: Alvarez & Marsal and Latham & Watkins, advisors to a group of Sunac China’s offshore creditors, asked investors during a call this afternoon, April 18, to refrain from signing the restructuring support agreement released by the company, and act together and demand the company to address material deficiencies in its current proposed restructuring, according to two sources who attended the call.
The advisors said they represent and are in talks with creditors holding about $1 billion of the company’s offshore debt, who are unhappy with the current proposal and inclined not to sign the RSA.
As reported, Sunac released its offshore restructuring plan last month, proposing a nine-year extension of the debt and giving creditors options to swap debt into equity of the company and its affiliate Sunac Services.
A&M and Latham said the current offshore plan falls short of the company’s onshore restructuring, which extended the bonds for three to four years and included asset pledges as creditor enhancement.
In comparison, the nine-year term-out for offshore creditors and payment-in-kind interest could result in very little cash flow in the early years, and the company offered only a cash sweep for the extended notes’ repayment and gave no collateral, the advisors said.
For the debt-to-equity swap portion, the conversion prices are significantly higher than market price which could lead to an immediate and significant haircut for creditors, the advisors said. Sunac China’s Hong Kong-listed shares were at HKD 1.97 at today’s close; that compares to a HKD 20 conversion price for the $1 billion convertible bond the company proposes to issue, and HKD 10 conversion price for the $1.75 billion mandatory convertible bonds.
The advisors said there’s room for improvement on the conversion prices and the company should put up offshore assets as collateral.
Latham said if creditors do not sign the RSA by its expiration date of April 20, the only loss is a 0.1% consent fee; they will still have the option to approve the scheme later. Once a creditor signs the RSA, they will be bound by the terms.
To prevent the company’s scheme from passing, creditors will need a 25% blocking stake of Sunac’s total offshore debt stack, according to Latham. The company’s proposed offshore restructuring concerns $9.1 billion debt and the ad hoc group that already agreed to the RSA hold around $3 billion of its USD notes, as reported
UPDATE 7: Advisors to Sunac China and AHG Say Proposed Actions of A&M and Latham Group May Be Value Destructive, Co. Reserves All Rights and Remedies; Claim Creditors Holding Close to 50% of Scheme Debt Have Acceded to RSAUPDATE 7: 7:11 a.m. ET 4/18/2023
: Representatives of Houlihan Lokey, advisor to Sunac China, and PJT Partners, advisor to an ad hoc group, or AHG, of Sunac’s offshore USD notes, told Reorg today, April 18, that the proposed actions taken by certain creditors outside the group, advised by Alvarez & Marsal and Latham & Watkins, to object to the proposed restructuring will not change the outcome of the proposed restructuring, that it may be value destructive to all stakeholders, and that the company reserves all rights and remedies.
The representatives noted that action taken by the creditor group advised by A&M and Latham may further impact the value and market prices of Sunac bonds and stock, and relevant stakeholders may also consider taking legal action against the creditor group.
, Alvarez & Marsal and Latham & Watkins are today hosting a call for Sunac offshore creditors to discuss objections to the restructuring proposal. A&M and Latham represent a group of offshore creditors affected by the restructuring proposal announced by Sunac China Holdings on March 28
, and which do not form part of the AHG of noteholders who had reportedly signed a restructuring support agreement, or RSA.
Sunac on March 28 proposed a nine-year termout with options for creditors to swap debt into Sunac China and Sunac Services shares. The company’s announcement on that date details that the AHG represented over 30% of the aggregate outstanding principal amount of $9.1 billion existing debt. Representatives for Houlihan and PJT claimed that other non-AHG creditors have reached out to Morrow Sodali and have acceded to the RSA, and together with the AHG now represent around 50% of total scheme debt.Pari Passu Treatment
The representatives for Houlihan and PJT also said that the March restructuring proposal treats all creditors equally on a pari passu basis. They added that members of the AHG hold Sunac’s private notes in addition to the USD notes, and on that basis the proposal represents a balanced creditor group of Sunac’s offshore indebtedness.
They claimed that A&M and Latham represent a small proportion of creditors which are commercial bank lenders to syndicated loans, and believe that the current action is an attempt to gain preferential treatment. However, they added that on information the company has received from legal counsel, the syndicated loans are pari passu with the bonds and there is no legal basis to a claim for preferential treatment.
UPDATE 6: Alvarez & Marsal, Latham & Watkins Representing Group of Offshore Creditors of Sunac China Holdings Outside of Ad Hoc Committee; to Discuss Objections to Proposed Restructuring on April 18 Creditor Call UPDATE 6: 3:34 a.m. ET 4/17/2023
: Alvarez & Marsal, or A&M, and Latham & Watkins LLP are representing a group of offshore creditors which are affected by the restructuring proposal announced by Sunac China Holdings Ltd. on March 28, 2023 (the proposal), and which do not form part of the ad hoc committee of noteholders who had reportedly signed a restructuring support agreement, or RSA, with Sunac, according to an announcement seen by Reorg.
A&M and Latham will host a conference call at 5:30 p.m. Hong Kong time / 10:30 a.m. London time on Tuesday, April 18, 2023, to discuss objections to the proposal and options for affected creditors.
Sunac China Holdings had announced
on March 28 to the Hong Kong stock exchange that on the same day it had reached agreement with an ad hoc group, or AHG, of offshore creditors representing over 30% of the aggregate outstanding principal amount of $9.1 billion existing debt, on terms of the offshore debt restructuring, which are memorialized in the RSA, as reported
A&M and Latham are encouraging creditors who may be affected by the proposal to join the April 18 call before they decide whether to sign the RSA, according to the announcement.
Creditors interested in joining the call can contact A&M at firstname.lastname@example.org
or Latham & Watkins at email@example.com
, the announcement states.
UPDATE 5: Excel: China Real Estate Developers Liability Management, Restructuring Exercise ComparisonUPDATE 5: 12:31 a.m. ET 3/30/2023
: Reorg's comparison
of the key terms of recent liability management and restructuring exercises launched by Chinese real estate developers is now updated with the proposed restructuring terms under Sunac China Holdings'
restructuring term sheet.
UPDATE 4: Sunac China Management Details Financing for Delivery, Stabilizing OperationsUPDATE 4: 11:28 a.m. ET 3/29/2023
: On a conference call with investors tonight, March 29, management of Sunac China detailed measures aimed at stabilizing operations while proceeding with onshore and offshore debt restructuring.
Chairman Sun Hongbin said on the call that management is focused on ensuring delivery, recovery of its core business and preserving value of its core assets.
The company on Tuesday, March 28 announced that it proposed to restructure its $7.704 billion USD senior notes and $1.344 billion other offshore debt alongside interests into $1 billion nine-year convertible bonds that can be converted into Sunac China shares, up to $1.75 billion five-year mandatory convertible bonds also into Sunac China shares, options to exchange into Sunac Services shares and at least $6 billion new USD notes with tenors ranging from two to nine years.
Management said on the call that in order to ensure a smooth and speedy recovery of the company, it has been actively pushing forward both onshore and offshore restructuring. It has completed restructuring CNY 16 billion ($2.323 billion) onshore debts by the end of 2022, and has reached agreement with the ad hoc group, or AHG, of the offshore creditors, representing over 30% of the aggregate outstanding principal amount of $9.1 billion offshore debts. Management said that it is in the process of preparing full-year 2022 financial reports and applying for a resumption of trading in the company shares on the Hong Kong stock exchange.
It is working with asset management companies, or AMC, to raise funding in order to revitalize its high-quality projects. With the advantage of good locations of its assets, it has raised funding of over CNY 20 billion for its Dongjiadu project in Shanghai and Taohuayuan project in Wuhan, with additional funding for other projects also in progress, said management.
As for onshore project financing, management said that most projects are in good standing, particularly those in core cities. Bank loans are being extended, and trust loan extension is being negotiated.
In order to ensure construction and delivery, Sunac has applied for special loans and related financing and has secured the first batch of about CNY 11 billion of special loans, while dozens of projects have received approval for the second batch of funding. In addition, the company has also secured certain project-level funding from banks, management added.
Footprint-wise, Sunac has retreated from certain cities and focused its operations in core cities. It also has reshuffled its regional structure to improve management.
Management said China’s real estate market is gradually recovering thanks to a series of supportive policies, and that Sunac saw improving contract sales in January and February. The company is confident that its sales will further improve in the second half of this year, according to management.
Yan Danmin, co-head of Houlihan Lokey’s China restructuring group, explained key restructuring terms to investors. The restructuring support agreement can be accessed HERE
UPDATE 3: Sunac China to Host Conference Call with Financial Advisor Houlihan Lokey Today, March 29, to Brief Offshore Debt Restructuring ProposalUPDATE 3: 7:03 a.m. ET 3/29/2023
: Sunac China is scheduled to host a conference call with its financial advisor Houlihan Lokey today, March 29, at 9:00 p.m. Beijing Time to brief investors on its offshore debt restructuring proposal.
The company previously announced that it proposed to restructure its $7.704 billion USD senior notes and $1.344 billion other offshore debt alongside interests into $1 billion nine-year convertible bonds that can be converted into Sunac China shares, up to $1.75 billion five-year mandatory convertible bonds also into Sunac China shares, options to exchange into Sunac Services shares and at least $6 billion new USD notes with tenors ranging from two to nine years.
The link of the conference call is below:
UPDATE 2: Sunac China Releases Offshore Debt Restructuring Terms, Offering Creditors Options to Exchange Debt Claims Into Convertible Bonds, Mandatory Convertible Bonds, Sunac Services Shares, 2-9 Yr New USD NotesUPDATE 2: 9:47 p.m. ET 3/28/2023
: Sunac China Holdings announced
to the Hong Kong stock exchange on Tuesday, March 28, that on the same day, it reached agreement with the ad hoc group, or AHG, of the offshore creditors, representing over 30% of the aggregate outstanding principal amount of $9.1 billion existing debt on the terms of the offshore debt restructuring, which are memorialized in the restructuring support agreement, or RSA.
As part of the proposal, the company offers to restructure its $7.704 billion USD senior notes and $1.344 billion other offshore debt alongside interests into $1 billion nine-year convertible bonds that can be converted into Sunac China shares, up to $1.75 billion five-year mandatory convertible bonds also into Sunac China shares, options to exchange into Sunac Services shares and at least $6 billion new USD notes with tenors ranging from two to nine years.
The company said the contemplated restructuring is intended to provide the company with a long-term, sustainable capital structure, allow adequate financial flexibility and sufficient runway to stabilize the business; and protect the rights and interests, and maximize value, for all stakeholders.
Broad-based support is required to facilitate a successful restructuring, and the company encourages all holders of the existing debt who have not signed the RSA to accede to the RSA as soon as possible.
The restructuring providing creditors with various options based on their specific objectives and constraints, including equitizing all or a portion of their debt claims to benefit from enhanced short-term liquidity and potential upside, or reinstating their debt claims to get paid over a longer period of time and benefit from certain cash sweep, contains various deleveraging elements (as detailed below) that are intended to help the company to achieve a sustainable capital structure, enhance its net asset value and reduce its net-gearing ratio.
A consenting creditor who validly holds eligible restricted debt as of the consent fee deadline on April 20, at 5 p.m. Hong Kong time and still holds all or part of such eligible restricted debt at the record time will receive a cash consent fee in an amount equal to 0.1% of the aggregate principal amount of the eligible restricted debt held by such consenting creditor as of the consent fee deadline.Key Terms of Restructuring
Convertible Bonds (CBs)
Convertible bonds scheme creditors, in aggregate, will exchange $1 billion of their existing debt claims into $1 billion nine-year convertible bonds. The CBs are convertible into ordinary shares of the company at a conversion price of HKD 20 per share during the first 12 months after the restructuring effective date. Each scheme creditor will receive a pro-rata share of the CBs based on its holdings of the existing debt claims.
Mandatory Convertible Bonds (MCB)
Scheme creditors may voluntarily elect to exchange their existing debt claims into zero-coupon, five-year mandatory convertible bonds, subject to an aggregate cap of $1.75 billion (which may be increased by the company). The MCB will rank pari passu
with the new USD notes. The holders of the MCB may convert their MCB into ordinary shares at a conversion price of HKD 10 per share on the restructuring effective date or six months after the restructuring effective date, subject to an aggregate cap of 25% of total MCB.
The controlling shareholder Sunac International Investment Holdings has agreed to equitize its $450 million shareholder loan on terms that are no more favorable than the terms of the proposed MCB.
Sunac Services Shares
Scheme creditors may voluntarily elect to exchange their existing debt claims into existing Sunac Services shares, at an exchange price equal to 2.5 times the volume-weighted average price of the Sunac Services shares for the 60 trading days immediately preceding the record time, subject to a minimum exchange price of HKD 17 per share. The voluntary election is subject to an aggregate cap of 449.4 million existing Sunac Services shares held by Sunac Services Investment, representing 14.7% of the total issued Sunac Services shares as of March 28.
Scheme creditors will exchange their existing debt claims into up to eight series of new USD denominated senior notes in an aggregate principal amount, totalling at least $6 billion, that equals the total existing debt claims of the scheme creditors minus the aggregate principal amount of the CBs, the aggregate principal amount of the MCB (if any) and the amount of existing debt claims exchanged into existing Sunac Services shares (if any).
The new notes will bear cash interest at the rates ranging from 5% to 6.5% per annum and will mature between two and up to nine years from the earlier of restructuring effective date or Sept. 30, and benefit from the cash sweep from a comprehensive asset package. The company shall have the option to extend the maturity of the first two tranches of new notes (with original maturity of two and three years) for one additional year. If maturity extension is elected, the interest rate of the extended tranche(s) of new notes shall increase by 1% during the extension period. The company may elect to make all or part of the interest payment in-kind in the first two years at interest rates that are 1% higher than the cash interest rates per annum.
Upon consummation of any specified asset sale, the company shall, subject to satisfaction of certain conditions precedent, remit no less than 50% of the net proceeds from such specified asset sale to a designated offshore account;
Cash sweep undertaking on certain net disposal proceeds from (i) Sunac Services shares; (ii) Wanda shares, Ziroom shares, and two onshore projects; and (iii) investment properties from 27 onshore projects.
The new notes, the MCB and the CBs benefit from the same subsidiary guarantees and charges over the shares held by the company or a subsidiary guarantor in the subsidiary guarantors, and the shareholder loan and/or any MCB issued in respect of the shareholder loan shall be subordinated in rights of payment to the new notes, the MCB and CBs.
The restructuring is expected to be implemented through one or more schemes. A scheme of arrangement is a statutory mechanism which allows the relevant court to sanction a “compromise or arrangement” which has been voted upon by the relevant classes of creditors and approved by the required majorities. It is not an insolvency procedure. The company expects to commence the process of implementing the restructuring on terms set forth in the RSA as soon as possible, the announcement shows.
Sunac has appointed Houlihan Lokey (China) Ltd., as restructuring financial advisor, Sidley Austin as restructuring legal advisor, and Morrow Sodali as the information agent. PJT Partners (HK) Ltd. is restructuring financial advisor to the AHG, and Linklaters is restructuring legal advisor to the AHG.
UPDATE 1: Sunac China Close to Finalizing Draft Offshore Restructuring Plan; AHG Agrees to Key Terms on CBs; Co. to Release Terms to Holders as Soon as This MonthUPDATE 1: 5:35 a.m. ET 3/10/2023
: Sunac China is close to finalizing a draft offshore restructuring plan as the company and an ad hoc group, or AHG, of holders of USD notes recently agreed on key terms, said two sources familiar with the matter.
After several rounds of negotiations, the AHG agreed to terms around proposed convertible bonds, which the company plans to use to swap a portion of its offshore debt into equity, the sources said. The AHG is expected to sign an agreement in the next two to three weeks, and the company could then release the proposal to a wider group of holders as soon as within this month, the sources added.
Sunac China released an offshore restructuring framework in December, proposing to convert $3 billion to $4 billion of its existing debt into ordinary shares or equity-linked instruments, and the remaining debt will be extended for two to eight years, as reported.
Sunac China referred to the company’s December announcement on its proposed restructuring terms and declined to comment further citing the blackout period.
PJT Partners, financial advisor to the AHG, declined to comment.
Original Story 9:32 p.m. UTC on Dec. 8, 2022Sunac China Announces Preliminary Restructuring Framework for Offshore Debt; AHG Creditors Hold More Than 30% of Existing DebtRelevant Document:Announcement
Sunac China Holdings Ltd. announced to the Hong Kong stock exchange today, Dec. 9, that it has proposed to ad hoc group, or AHG, creditors a preliminary restructuring framework for its offshore debt, and intends to implement a restructuring plan for all existing debts that benefit from the same set of security value pre-restructuring by way of scheme(s) of arrangement in Hong Kong and/or Cayman Islands.
The company said it has been engaging with certain holders of the senior notes and other offshore debts issued by the group with an aggregate principal amount of approximately $9.1 billion, excluding holders of certain secured offshore debts which it intends to deal with on a bilateral basis.
Such holders of the existing debt who have formed an AHG of offshore creditors collectively hold or control more than 30% in aggregate principal amount of the existing debt, the announcement shows.
The company proposed to the AHG creditors a preliminary restructuring framework with the following key elements:
- A deleveraging plan which contemplates the company converting $3 billion to $4 billion of existing debt, and certain shareholder loans into ordinary shares or equity-linked instruments in order to achieve a sustainable capital structure that is capable of being serviced by continuing operations, while also addressing the concerns of offshore creditors. The company is exploring different structures with the AHG creditors to achieve the target deleveraging;
- Exchanging residual existing debt into new USD denominated public notes with maturities ranging from two to eight years from the restructuring effective date. It is contemplated that certain interest payable on the new notes can be accrued in the initial two-year period post restructuring, in order to provide an appropriate period of time for the group to restore its operations and liquidity profile, and after which it is contemplated that such interest will be paid in cash;
- Using net proceeds (if any) from the disposal of certain assets as an additional source of funding for the repayment of the new notes; and
- Offering consent fee for creditors who provide their support to the restructuring proposal.
As of today, Dec. 9, the company is still in discussion with AHG creditors on the offshore restructuring proposal, and no definitive agreement on the terms have been entered into between the group and the AHG creditors, according to the announcement.
Sunac China added that it plans to deal with certain offshore creditors with onshore and offshore assets as credit enhancement pre-restructuring on a bilateral basis.
As of June 30, there has not been a significant change to the amount of interest-bearing debt compared with the end of 2021, of which the principal amount of unaudited offshore interest-bearing debt was approximately $11 billion. Of the said offshore debt, $3.7 billion, or about 34% of the total offshore debt, has an original maturity before the end of 2022, the announcement details.
The cash balance of Sunac China’s property development sector was approximately RMB 120 billion in aggregate, of which the consolidated cash balance amounted to RMB 41 billion as of June 30. Most of such cash is held in monitoring accounts at the project level.
The total cash flow generated from development projects, including development projects developed by the group and its joint ventures and associates over the next seven years or so, is expected to be approximately RMB 320 billion, which is based on reasonable commercial assumptions and may vary depending on market conditions, the announcement states.
About 20% of the total projected cash flows is expected to be available to upstream to offshore entities of the group for service of debts, and it may consider gradually disposing of part of its assets (if any) over the next seven years or more, subject to market conditions and asset operation circumstances, which is expected to increase the overall liquidity of the group by approximately RMB 60 billion. according to the announcement.