Zhenro cannot make perp payment, launches consent solicitation

Published 21 February 2022, 10:06:06 am

HONG KONG, Feb 21 (IFR) - Zhenro Properties Group has announced a consent solicitation related to its perpetual bonds callable in March. 

The consent solicitation, announced late on Friday, moves 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. As of Friday, the bonds have US$200m outstanding. The company has US$3.65bn of international bonds outstanding, according to Refinitiv data.

The B3/B (Moody's/Fitch) rated real estate developer had announced on January 4 that it would redeem its senior perp in full on March 5. But it wrote in its February 18 stock exchange filing that market conditions have since worsened, and the company's funds that were available for debt services are "increasingly limited" and will likely be insufficient to make the payment. Zhenro added that China's property sector will remain under pressure, denting the chances of recovery and financing options for real estate borrowers.

The consent solicitation is only related to the perpetual bond, but Zhenro said it is considering liability management exercises related to its other offshore debt in the near future. Should the proposal not be accepted, Zhenro may not be able to fully redeem the perpetual notes, and may have to look to other debt restructuring options.

Investors have been offered a consent fee of US$10 per US$1,000 of principal, and a step-up fee of US$7.5 per US$1,000.

The offer expires on March 11 at 5pm. Zhenro will hold a meeting with investors on March 14 in Hong Kong, and it will announce the results of its offer and meeting the following day.

Leonard Law, senior credit analyst at Lucror Analytics, wrote on Monday that the proposal was "highly disappointing and akin to a distressed restructuring." Law speculated that investors may be willing to cancel the redemption of the notes, while accepting a coupon step-up. Zhenro has US$217m of notes due in April and US$293m due in August, in addition to privately placed bonds coming due. This means that Zhenro may need to exchange its other upcoming maturities as well, said Law. 

Admiralty Harbour Capital is the solicitation agent and DF King is the tabulation and information agent.

Zhenro's bonds have plummeted over the last two weeks as rumours of a possible restructuring hit the market. The company's August and September 2022 US dollar bonds were trading at a cash price of 19.5 on Monday morning.

Zhenro's bonds made up five of the 10 worst performing Asia US dollar high-yield notes for the last two weeks, according to CreditSights.

The company's shares were down 11.5% to HK$0.77 this morning, having lost 79% year to date.

By Morgan Davis