[BEIJING] Creditors owed around US$150 billion by defaulted Chinese developers always stood to get just pennies back, but many are finding that even after a debt plan is agreed, it’s not necessarily a done deal.
A growing number of builders that passed a seemingly key stage of restructurings in getting court approval for their plans are heading back to square one, after fresh liquidity problems amid a prolonged property crisis made it harder for them to honour their promises.
On Friday, Kaisa Group Holdings, which carries one of the largest debt loads in the industry, will become the latest Chinese builder to ask a Hong Kong court for approval on its restructuring plan. But even if it gets the nod, the recent experience of its peers shows a daunting path ahead.
Powerlong Real Estate Holdings, for example, indicated last month that its restructuring deal had lapsed, just two months after Hong Kong’s High Court approved the agreement. Powerlong said that it will continue “working with the offshore creditors and calls for their patience, understanding and support.”
The troubles faced by these companies show the continued risks to Chinese developers even after clearing key steps in the restructuring process. Some larger developers such as Shimao Group Holdings and Sino-Ocean Group Holding have recently won court sanctions for their debt plans, but they will still need to have enough liquidity to complete the deals.
“It is a combination of ability and intention,” said Una Ge, a partner and managing director at AlixPartners in Hong Kong. Some developers are short on cash to meet payment obligations immediately after a restructuring, but others are seeing diminishing returns from deals agreed upon one or two years ago, making delays in restructuring a “not bad” solution, she added.
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Another developer, Yuzhou Group Holdings, also got the court’s green light, but it went back to creditors in February saying that it needed more time. The builder will use the next six months “to shore up its liquidity in advance of making the payments due on the restructuring effective date,” Christopher Hunker, a counsel at Linklaters on behalf of Yuzhou, said during a bankruptcy court hearing in New York.
Some restructurings can stall out altogether. Zhenro Properties Group vacated a hearing for a creditor vote on its offshore debt plan last year. But in January, the founder of its parent company, Zhenro Group, was placed under “compulsory measures” by authorities. The company planned to revise its debt plan with a possible haircut for creditors, but talks are not progressing, according to people familiar with the matter.
Zhenro didn’t respond to requests for comment.
“Both developers and lenders are realising the harsh reality,” said AlixPartners’ Ge. “If China’s property market continues to struggle, offshore creditors, such as banks or bondholders, may only recover a small portion of the money they’re owed.” BLOOMBERG