China’s ‘three red lines’ policy is about to crush another developer as Yuzhou Group seeks to swap bonds, delay coupon and weaken debt covenants
- Shenzhen-based Yuzhou wants to delay paying two dollar bonds by a year in a debt exchange plan, seeks consent to waive certain default clauses in 12 other bonds
- Troubles follow other developers in same southern Guangdong province as developers are shut out of funding market
The group is offering sweeteners to bondholders to delay repayment by a year on two dollar-denominated bonds worth US$582 million in a debt exchange plan, according to an exchange filing, citing significant short-term liquidity pressure. The notes are due this month.
Yuzhou is also seeking approval from creditors to weaken the covenants on a dozen other offshore debts worth about US$4.92 billion, it added. Coupon payments totalling US$110 million on five other notes due within the next seven weeks are likely to be delayed, the company said.
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“[The company] does not expect to have sufficient funds to repay note holders who do not agree to the exchange, which would likely trigger an event of default,” it said in a filing to the stock exchange on Thursday. Yuzhou’s shares fell 6.9 per cent in Hong Kong.
Under the debt swap, the Shenzhen-based developer offered to pay a US$50 upfront payment for every US$1,000 of the face value of the two bonds. The balance will be exchanged into new January 2023 notes paying 7.8125 per cent interest.