Sino-Ocean Group, a prominent Chinese real estate developer, is facing significant challenges in its efforts to restructure $5.64 billion in offshore debt. Recent reports indicate that less than 30% of creditors support the company's proposed plan, potentially complicating its financial recovery amid China's ongoing property market downturn.
The Beijing-based developer, founded in 1993 and listed on the Hong Kong Stock Exchange, is grappling with a critical situation as it approaches a liquidation hearing scheduled for September 11, 2024. This hearing stems from a winding-up petition filed by Bank of New York Mellon, acting as a bond trustee for a key bondholder group.
According to sources familiar with the matter, the majority of creditors who have agreed to the restructuring proposal are banks. Notably, less than 20% of overall bondholders, who collectively hold approximately $4 billion worth of notes, have expressed intention to support the plan.
In July 2024, Sino-Ocean proposed repaying existing debt through a combination of new financial instruments, including:
- New loans and notes worth $2.2 billion
- Convertible bonds
- Interest-bearing perpetual securities
The company's creditors are categorized into four classes, with Class A comprising around $1.9 billion in outstanding syndicated and bilateral loans. The remaining classes consist of senior noteholders, each allocated different ratios of new debt.
However, noteholders have voiced opposition to the proposal, arguing that it does not treat them fairly. In response, an ad hoc bondholder group presented a counter proposal earlier this week, suggesting:
- Increased new equity issuance
- Options for lower "haircuts" and shorter loan terms
- Enhanced credit enhancement measures
This situation reflects the broader challenges facing China's real estate sector, which accounts for approximately 30% of the country's GDP. The industry has been experiencing a significant downturn since 2021, affecting numerous developers and investors.
"As a bond trustee, we are obligated to act in the best interests of the bondholders. The filing of the winding-up petition is a necessary step to protect their rights in this complex restructuring process."
The low support rate for Sino-Ocean's restructuring plan may provide the company with additional leverage in negotiations with bondholders who are still hoping to recover some of their investments. As the September 11 hearing approaches, all eyes will be on the Hong Kong court, known for its English common law-based system, to see how this high-stakes financial drama unfolds.