Chinese builder Redsun Properties faces winding-up threat in Hong Kong as debt crisis goes from bad to worse

Chinese developer Redsun Properties is facing a winding-up petition in Hong Kong as creditors demand repayment of defaulted dollar bonds
Chairman and major shareholder Zeng Huansha’s personal investment vehicle also faces similar litigation after missing a bond repayment

China property

Cheryl Arcibal

Published: 4:00pm, 16 Feb 2024

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The debt crisis at Redsun Properties Group is going from bad to worse as it has missed payments on several offshore bonds since mid-2022 as China’s housing market struggles to overcome a three-year slump. Some bondholders have now moved to put the developer out of business.

The Bank of New York Mellon (London branch) has filed a winding-up petition against the firm for failing to repay at least US$228.5 million, the company said in a Hong Kong stock exchange filing on Friday. The debt is related to a US$200 million two-year junk bond due in September 2023 plus unpaid interest.

The petition was filed on February 14 in Hong Kong, according to the filing. The hearing date was not disclosed. Redsun said it is seeking legal advice on the matter. The US bank acts as the trustee of the bond, according to the bond offering document published in 2021.

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The litigation highlights the swift downfall of the developer based in Nanjing in eastern Jiangsu province, which only listed in Hong Kong less than six years ago. It also shows how some foreign creditors have lost patience with many Chinese builders as home sales have slumped after a liquidity crunch triggered by Beijing’s “three red lines” policy, and were later compounded by the Covid-19 pandemic.

The same Hong Kong court last month granted a winding-up order against China Evergrande Group after it failed to reorganise about US$20 billion of offshore debts. The Evergrande case has been billed as the biggest corporate collapse of a Hong Kong-listed entity, based on its US$337 billion of total liabilities.

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Since its last repayment of offshore bonds in April 2022, Redsun has defaulted on some of its US$1.5 billion dollar-denominated bonds, including in April and September last year. It hired Haitong International Securities and Linklaters as external advisers in August 2022 to deal with creditors.

“No hearing has taken place in relation to the petition and no winding-up order has been made by the High Court against the company,” the developer said in today’s filing. Redsun said it has been communicating with some bondholders to find a solution.

Zeng Huansha, chairman and controlling shareholder of Redsun Properties Group. Source: Annual Report

Zeng Huansha, the company’s chairman and controlling shareholder, is also under pressure. A creditor, Serica Agency Limited, has also filed a petition to foreclose his personal investment vehicle for failing to repay a US$275 million bond, according to an exchange filing last month.

Evergrande’s demise has opened the door for more winding-up petitions against indebted developers, independent market analyst Louis Tse Ming-kwong said. “Some banks are among the creditors, and they are also listed,” he said. “What else can they do but seek recourse from courts?”

Logan Group, which faced a hearing on Friday, was more fortunate. The High Court squashed petitions by creditors to liquidate two key units of the group. A group of bondholders that initially filed the petitions is planning to withdraw its action, after being satisfied with the Shenzhen-based builder’s restructuring proposals.

They were “reasonably happy with the situation”, and no other creditors stepped in to substitute for the original petitioner, Judge Anthony Chan said in his decision.

Additional reporting by Bloomberg News