Sunac China making headway with offshore debt restructuring; ad hoc group gives support

By Marisa Wong

Los Angeles, March 28 – Sunac China Holdings Ltd. issued an update on Tuesday regarding the restructuring of its offshore debt.

The company announced that on March 28 it reached agreement with the ad hoc group of offshore creditors collectively holding or controlling more than 30% in aggregate principal amount of the existing debt on the terms of the restructuring.

The company’s existing senior notes and other offshore instruments total about $9,048,000,000 (excluding secured offshore debt that the company intends to deal with on a bilateral basis).

The proposed restructuring is intended to provide the company with a long-term, sustainable capital structure; allow adequate financial flexibility and sufficient runway to stabilize the business; and protect the rights and interests, and maximize value, for all stakeholders, according to the company announcement.

Broad-based support is required to facilitate a successful restructuring, so the company is asking all holders of the existing debt who have not signed the restructuring support agreement to accede to the RSA as soon as possible.

Restructuring

In sum, the restructuring (a) gives the relevant creditors various options based on their specific objectives and constraints, including equitizing all or a portion of their debt claims to benefit from enhanced short-term liquidity and potential upside, or reinstating their debt claims to get paid over a longer period of time and benefit from certain cash sweep; and (b) contains various deleveraging elements that are intended to help the company achieve a sustainable capital structure, enhance its net asset value and reduce its net-gearing ratio.

Creditors will be able to exchange existing debt into the following securities:

• Convertible bonds. Scheme creditors, in aggregate, will exchange $1 billion of their existing debt claims into $1 billion nine-year convertible bonds. The convertible bonds will be convertible into ordinary shares of the company at a conversion price of HK$20 per share during the first 12 months after the restructuring effective date, after which the bonds will no longer have any conversion rights and will be redeemed at their maturity. Each scheme creditor will receive a pro rata share of the convertible bonds based on its holdings of the existing debt claims;

• Mandatory convertible bonds. Scheme creditors may voluntarily elect to exchange their existing debt claims into zero-coupon five-year mandatory convertible bonds, subject to an aggregate cap of $1.75 billion that may be increased by the company. The mandatory convertible bonds will rank pari passu with the new notes (below). Holders may convert their mandatory convertible bonds into ordinary shares at a conversion price of HK$10 per share on the restructuring effective date or six months after the restructuring effective date, subject to an aggregate cap of 25% of total mandatory convertible bonds. Any outstanding mandatory convertible bonds at maturity will be mandatorily converted into ordinary shares in full;

• Sunac Services shares. Scheme creditors may voluntarily elect to exchange their existing debt claims into existing Sunac Services shares at an exchange price equal to 2.5 times the volume-weighted average price of the shares for the 60 trading days immediately preceding the record time, subject to a minimum exchange price of HK$17 per share. The voluntary election is subject to an aggregate cap of 449,356,068 existing Sunac Services shares held by Sunac Services Investment; and

• New notes. Scheme creditors will exchange their existing debt claims into up to eight series of new dollar-denominated senior notes in an aggregate principal amount that equals the total existing debt claims of the scheme creditors minus the aggregate principal amount of the convertible bonds, the aggregate principal amount of the mandatory convertible bonds (if any) and the amount of existing debt claims exchanged into existing Sunac Services shares (if any). The new notes will mature between two and up to nine years from the earlier of restructuring effective date or Sept. 30 and benefit from the cash sweep from a comprehensive asset package. The company will have the option to extend the maturity of the first two tranches of new notes with original tenors of two and three years for one additional year. If maturity extension is elected, the interest rate of the extended tranches will increase by 100 basis points during the extension period. Those notes will bear cash interest at rates ranging from 5% to 6˝% per annum. The company may elect to make all or part of the interest payment in kind in the first two years at interest rates that are 100 bps higher than the cash interest rates per annum.

RSA, consent fee

Under the RSA, the company will try to procure a scheme effective date and to fully implement the restructuring on or before the longstop date, which is Dec. 31, 2023.

Consenting creditors in turn have agreed to vote in favor of the scheme.

Consenting creditors will be eligible to receive a cash consent fee of 0.1% of the aggregate principal amount of the eligible restricted debt held by that consenting creditor as of the consent fee deadline.

The consent fee deadline is 5 a.m. ET on April 20.

Next steps

The restructuring is expected to be implemented through one or more schemes of arrangement.

The company said it expects to begin the process of implementing the restructuring as soon as possible.

The company said it will make further announcements of any material development when appropriate.

Requests for information can be directed to the information agent or to the company or ad hoc group’s financial and legal advisors.

The information agent is Morrow Sodali Ltd. (https://projects.morrowsodali.com/Sunac; https://portal.morrowsodali.com/sunac; https://portal.morrowsodali.com/sunacTRANSFER; sunac@investor.morrowsodali.com; +44 20 4513 6933, +852 2319 4130).

Houlihan Lokey (China) Ltd. (sunac@HL.com) is the restructuring financial advisor and Sidley Austin (sidleyprojectcz@sidley.com) the restructuring legal advisor for the company.

For the ad hoc group, PJT Partners (HK) Ltd. (projectsakura@pjtpartners.com) is restructuring financial advisor, and Linklaters (dlprojectsunac@linklaters.com) is restructuring legal advisor.

Trading in shares of the company has been suspended on the Stock Exchange of Hong Kong Ltd. since April 1, 2022.

Sunac is a Tianjin, China-based residential and commercial property developer.

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