Zhongnan to swap $165.28 million 2022 notes for new notes, cash, gets consents for 2024 notes

By Marisa Wong

Los Angeles, June 6 – Haimen Zhongnan Investment Development (International) Co. Ltd. announced the results of its exchange offers for two series of senior notes due 2022 and consent solicitation for a series of notes due in 2024.

As announced on May 24, the issuer offered to exchange at least $65,565,000, or 90%, of the $72.85 million outstanding 10 7/8% senior notes due June 2022 (ISIN: XS2008677341) and at least $135 million, or 90%, of the $150 million outstanding 12% senior notes due June 2022 (ISIN: XS2349744594).

The company was also soliciting consents for the 11½% senior notes due 2024 (ISIN: XS2288886216).

The notes are guaranteed by Jiangsu Zhongnan Construction Group Co. Ltd.

The company had said the purpose of the exchange offer and the consent solicitations is to manage the maturity size and extend the maturity profile of its existing senior notes, avoid payment default and replace the old notes with new notes.

Exchange results

As of the expiration of the exchange offers at 4 a.m. ET on June 2, holders had tendered $54.76 million, of 75.17%, of the 10 7/8% notes due 2022 and $110,516,000, or 73.68%, of the 12% notes due 2022.

Although the minimum acceptance threshold for each series of old notes has not been met, the company has decided to waive this condition to the exchange offers, according to an announcement on Monday.

The company will accept all of the old notes tendered for exchange in full with no pro rata scaling.

In exchange for the old notes, the company expects to issue $157,012,200 of new 12% notes due June 5, 2023 and pay $19,216,074 in cash.

As previously announced, the issuer had offered for each $1,000 principal amount of old 2022 notes tendered for exchange, $50 principal payment in cash, a $10 cash incentive, $950 principal amount of new notes and any accrued interest.

Following settlement, $18.09 million of the 10 7/8% notes due 2022 and $39,484,000 of the 12% notes due 2022 will remain outstanding.

Consent solicitation results

The consent solicitation for the 2024 notes also expired at 4 a.m. ET on June 2.

Holders had delivered the necessary consents to amend the 2024 notes.

The amendments relate to events of default and carve out the 2022 notes from cross-default events.

Holders who delivered a consent to the amendments will receive a consent fee of $2.50 for each $1,000 principal amount of outstanding 2024 notes held.

Background

The company had said that since mid-2021 Chinese property developers have faced increasing difficulty in accessing onshore capital due to reduced bank lending for real estate development. Reduced bank lending for mortgage finance for buyers, combined with buyers’ concerns about the ability of property developers to complete projects, has also adversely affected property sales. To exacerbate the situation, use of pre-sale proceeds is restricted under applicable Chinese laws.

Negative reaction to these onshore events by offshore capital markets has curtailed funding sources to address upcoming debt maturities. In 2022, the property sector in China continues to experience volatility. Reduced bank lending for real estate development activities, compounded by some negative credit events, have further intensified market concerns over the operations of Chinese property developers. This has led to a general decrease in pre-sales by Chinese property developers. Against the backdrop of such adverse market conditions, the company said it began to experience short-term liquidity pressure due to limited access to external capital to refinance existing indebtedness; therefore, it expects existing internal resources may be insufficient to address the upcoming debt maturities in June 2022.

Details

The exchange offer and consent solicitation are subject to there being no material adverse change in the market prior to settlement, among other conditions.

Settlement is expected on June 6.

On or about June 7, the new notes will be listed on the Singapore Exchange.

Haitong International Securities Co. Ltd. and Guotai Junan Securities (Hong Kong) Ltd. are dealer managers for the exchange offers and the solicitation agents for the consent solicitation.

D.F. King Ltd. (+44 20 7920 9700, +852 3953 7208 or zhongnan@dfkingltd.com) is the information, exchange and tabulation agent for the exchange offers and consent solicitation.

Zhongnan Construction is a real estate development and engineering services company based in Shanghai.

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