Zhenro launches exchange proposal for five 2022 bonds
Published 22 February 2022, 11:36:47 am
HONG KONG, Feb 22 (IFR) - Zhenro Properties Group has proposed to exchange five of its offshore bonds due this year for new bonds due in March 2023, as the company is unable to repay two US dollar bonds due next month.
The exchange proposal comes as the Chinese property developer is also courting investors with a consent solicitation to avoid cross-defaults.
The Hong Kong-listed company said existing internal resources may be insufficient to address its upcoming debt maturities, which include a US$200m senior perp that was set to be called on March 5 and a US$50m 5.95% bond due on March 6.
Zhenro launched a consent solicitation to waive events of default and any consequential breaches or defaults arising from the non-redemption of the perps, and non-payment of principal and interest on the US$50m 5.95% bond. It warned that if the exchange offer and consent solicitation fail, it may consider an "alternative debt restructuring exercise". Although there is no duty to redeem the perps in March, some think that when Zhenro announced in January that it would call the perps in full it created an obligation so that it could be in default if it does not act accordingly.
Under the exchange offer and consent solicitation, the five bonds due this year have a total outstanding amount of US$1.05bn. They are the US$50m 5.95% March 2022s, US$218.39m 5.98% April 2022s, Rmb1.6bn (US$252.6m) 7.125% June 2022s, US$293m 8.70% August 2022s and US$236.3m 6.5% September 2022s. The outstanding amount does not include US$1.81m of certain notes held by two of the company’s directors and US$20.5m held by the company.
For the four US dollar bonds, for each US$1,000 principal amount, holders could receive new 8% US dollar bonds due March 6 2023 on a par-to-par basis; plus US$10 in cash on or before the early consent deadline of March 4, or US$5 in cash after the early consent deadline but by the expiration deadline of March 11; plus any accrued interest.
For the 7.125% Dim Sum bond, for each Rmb10,000 principal amount, holders could receive new 8% Dim Sum bonds due March 6 2023 on a par-to-par basis; plus Rmb100 in cash on or before the early consent deadline of March 4; or Rmb50 in cash after the early consent deadline but by the expiration deadline of March 11; plus any accrued interest.
Zhenro has set a 85% minimum acceptance amount threshold for each of the five bonds.
By validly tendering the existing notes in the exchange offer, eligible holders will be deemed to have given approval to the consent solicitation.
Zhenro is also soliciting consent for eight US dollar bonds maturing between 2023 and 2026 with a total US$2.36bn outstanding. They are the 8.35% 2024s, 9.15% 2023s, 8.3% 2023s, 7.875% 2024s, 7.1% 2024s, 7.35% 2025s, 6.63% 2026s and 6.7% 2026s.
Zhenro said the principal purpose of the consent solicitation is to eliminate the restrictive covenants and to modify certain events of default, the definition of change of control and other provisions in the existing notes, as well as to waive any potential breaches.
There is a consent fee of US$2.50 for each US$1,000 in principal amount on or prior to the early consent deadline of March 4 and US$1 after the early consent deadline but on or prior to the expiration deadline of March 11.
Admiralty Harbour Capital is the dealer manager and solicitation agent. DF King is the information, exchange and tabulation agent.
Settlement is expected on or about March 28.
Disappointing but unsurprising
Shu Hui Woon, a credit analyst at Lucror Analytics, wrote in a note that the action is "disappointing but unsurprising", considering Zhenro's announcement that it would not redeem its perps as previously promised. "We view its proposed one-year extension with 8% coupon as fair, and in line with the exchange offers announced by peers."
Zhenro had announced on January 4 that it would redeem the perps in full on March 5. But on February 18 the company wrote in a stock exchange filing that market conditions have since worsened, and the funds that were available for debt service are "increasingly limited" and will likely be insufficient to make the payment.
The company launched a consent solicitation on February 18, aiming to waive and forgive any default that may occur when the company does not redeem the bonds next month, as well as modify the terms and conditions of the notes regarding the definition of the first reset date and change of control. It will also remove "relevant indebtedness default event" from the list of events that would trigger an increase in the distribution rate, meaning the company would continue to pay a 10.25% distribution rate until March 2023.
Moody's and Fitch on February 21 downgraded Zhenro, citing heightened default risk.
Moody's lowered Zhenro's rating to Caa2 from B3 and its senior unsecured ratings to Caa3 from Caa1. The ratings outlook remains negative. Cedric Lai, a Moody's senior analyst, said the inconsistent debt repayment plans shared over the past two months raised "concerns over the company's financial strategy and risk management".
Fitch cut Zhenro's issuer and its senior bonds ratings to C from B. Fitch said it considers the consent solicitation for the perps as a distressed debt exchange.
Zhenro's US dollar bonds were quoted in the mid-10s on Tuesday morning.
By Carol Chan