Road King maps restructuring route

Published 14 June 2024, 21:12

Road King Infrastructure, a Chinese toll-road operator turned property developer, is seeking consent to extend the maturities and coupon reset dates of almost US$2bn of bonds on what it calls “generous and sincere” terms.

Unlike other Chinese real estate names that have sought debt extensions or restructurings, Road King is offering investors a sizable upfront payment, with no coupon reductions or haircut.

Six bonds are included in the consent solicitation: a US$301.2m 6.7% September 2024, a US$194.6m 5.9% March 2025, a US$186.4m 6% September 2025, a US$488m 5.2% January 2026, a US$488m 5.125% July 2026 and a US$300m 7.75% perpetual note with a coupon reset on November 18 this year.

The company is asking to extend the maturities and reset date by 3.5 years to March 2028, September 2028, March 2029, July 2029, January 2030 and May 2028. The coupons will remain the same.

Under a concurrent tender offer, the company will spend up to US$60m to repurchase the five dated bonds at deep discounts, offering investors a way to cash out part of their exposure as well as an incentive to agree to the extension. Those who participate in the tender offer are deemed to vote in favour of the consent solicitation.

Up to US$30m will be used to repurchase the 2024s and the remainder will be allocated towards the other four bonds using the same acceptance ratio. The purchase prices are US$515 per US$1,000 in principal, US$380, US$317.50, US$262.50 and US$257.50 respectively.

In addition, Road King will make early repayments of the five dated notes as part of the consent solicitation. It will repay 22.5% of the outstanding principal amount after the settlement of the tender for the 2024s, 10% of the 2025s and 8% of the 2026s.

Holders who participate will also receive a cash fee of 0.5% of the amount tendered and the same fee will also be paid to those who only participate in the consent solicitation.

Road King offers to pledge three “core assets” for credit enhancement: a residential project named Southland in Hong Kong, Indonesian toll roads and a 75% interest in Shanghai Juanqi Real Estate, which is developing a residential project in Shanghai. If the company disposes of any of the assets or raises new asset financing, between 50% and 80% of the proceeds will be used to repurchase the notes.

“It is a sincere exercise that the company really wants to work with shareholders. The upfront payment is more meaningful compared with other Chinese developers, and the assets they put in the exercise are the core assets of the company,” said a source.

Lucror Analytics analysts said in a note on Thursday that the tender and consent solicitation offer “higher recovery than those of other defaulted Chinese property developers”, and pointed out no coupon reduction or principal haircut as the upside. But the exercise will not do much to cut leverage, which may be detrimental to the company’s credit profile over the medium term, they said.

Zerlina Zeng from CreditSights said she did not expect the consent offer to be a “game changer” as the purchase prices for the five bonds are close to their trading levels.

“Road King’s toll road assets are around 10% of its total assets, but we think it would be hard for offshore US dollar bondholders to extract additional recovery value given their structural subordination,” she said. “In addition, it is unclear whether the toll assets have been pledged for project loans.”

Other amendments include adding amortisation payment provisions for the five bonds as well as changing the covenants of all the notes except the 5.125% 2026s to align with that note.

Both the consent solicitation and tender offer will expire on June 28. The consent solicitation will be passed if not less than three-quarters of the votes for each note cast at a bondholder meeting, to be held on July 3, are in favour.

JP Morgan is the dealer manager and Morrow Sodali is the information, tender and tabulation agent.

Road King, one of the few private Chinese property companies not to have defaulted yet, launched the liability management as it is struggling to meet its maturity wall later this year. In addition to the 2024 note and the perp’s coupon payment, it also has loans due in September, which a Lucror note said the company is seeking a separate extension for.

The liquidity crunch was triggered by the company's loss-making real estate business, which accounted for about 90% of its 2023 revenue.

Road King started as a toll-road operator in 1994 and expanded into the real estate sector in 2004 when it acquired three projects in Guangzhou.

It then took over distressed developer Sunco Property in 2007, which was founded by Sun Hongbin, the owner of Sunac China Holdings. Sunac completed its own offshore debt restructuring last year.

That acquisition allowed Road King to quadruple its land reserves to more than 6 million square metres from around 1.5 million sqm, according to Chinese media reports. Further acquisitions since brought its land reserves to 8 million sqm by the end of 2018.

That business fell prey to China's property crisis and the company recorded a loss attributable to shareholders in 2022 compared with a profit the year before. To preserve liquidity, it disposed of its remaining four toll roads in China and now owns four projects in Indonesia.

The source said part of the proceeds from the onshore toll-road projects went to pay off project loans, which did not leave the company with much cash to meet its upcoming maturities.

“The toll road is a fundamentally stable business. Although it’s not generating a lot of dividends at the moment, the business is expected to be generating stable cashflow in the future,” said the source. “It needs a bit of breathing room for future developments.”