Developer China Aoyuan seeks creditors’ approval for US$4.2 billion offshore-debt plan as delisting warning looms

The agreement includes new notes, new shares, debt-to-equity conversion, perpetual securities and the transfer of shares to creditors

The company said it had 42.8 billion yuan (US$5.9 billion) in foreign-currency debt as of the end of 2022

2-MIN READ2-MIN

Residential buildings under construction in Zhengzhou, Henan province, China, on June 7, 2023. Photo: Bloomberg

Published: 4:01pm, 3 Jul 2023

Embattled developer China Aoyuan Group has reached an agreement with a third of the holders of its offshore debt for a restructuring plan that would allow it to obtain capital to sustain its daily operations, the company said in a filing with the Hong Kong exchange on Monday.

The Guangzhou-based developer has US$3.45 billion of debt in 12 dollar bonds, which formed part of its total of 42.8 billion yuan (US$5.9 billion) in foreign-currency debt at the end of 2022, according to the filing.

The agreement, which will need the approval of 75 per cent of the company’s creditors, includes a total of about US$4.2 billion in new notes, new shares, the transfer of shares to creditors, conversion of debt to equity and the issuance of perpetual securities.

Aoyuan is among 11 Chinese developers working to restructure their debts amid the threat of delisting now that Beijing has allowed the resumption of borrowing in the sector after the credit squeeze brought on by the ‘three red lines’ policy pushed many developers into default. The Hong Kong stock exchange suspended trading of Aoyuan’s shares in April 2022, and the company faces a delisting warning by the end of September.

The logo of Hong Kong Exchanges and Clearing (HKEX), Hong Kong’s bourse operator, appears inside of Exchange Square in Central on June 30, 2023. Photo: Yik Yeung-man

The restructuring agreement, detailed in a separate filing with the exchange on Sunday night, states that Aoyuan will issue three notes worth US$1.8 billion that will start amortising in September 2026 with a maturity date of September 2031. The notes will have a cash interest rate of between 7.5 per cent and 8.8 per cent per year. Another note worth US$500 million will be issued with a maturity date of September 2031 and a 5.5 per cent interest rate.

Aoyuan CEO Guo Zi Wen and his family will also transfer 400 million shares to “certain eligible creditors”. Those shares represent 25.22 per cent of the company’s shares currently and 10.09 per cent after the restructuring, valuing the shares at HK$1.06 apiece.