Zhongliang opens 2022 notes exchange, consent bid, separately seeks consents for 2023 notes

By Wendy Van Sickle

Columbus, Ohio, April 28 – Zhongliang Holdings Group Co. Ltd. began an exchange offer and consent solicitation for two series of senior notes due this year and a consent solicitation for a series of notes due in 2023, according to a notice.

The company is offering to exchange at least $260.82 million, or 90%, of the $289.8 million outstanding 8˝% senior notes due May 2022 (ISIN: XS2341214059) and at least $395.55 million, or 90%, of the $439.5 million outstanding 9˝% senior notes due July 2022 (ISIN: XS2247412518).

The company also began a consent solicitation for the 12% senior notes due April 2023.

The company said the purpose of the exchange offer and the consent solicitations is to improve its overall financial condition, extend its debt maturity profile, strengthen its balance sheet and improve cash flow management.

The company is offering $1,000 of new notes for each $1,000 of notes tendered plus a $10 incentive fee cash and any accrued interest. The new notes will be a combination of dollar-denominated senior notes due December 2023 and dollar-denominated senior notes due April 2023.

The total amount of December 2023 notes to be issued shall not exceed $533 million, and the amount of those notes a holder receives will be calculated by multiplying the principal amount of the existing notes held by such holder by a proration factor of 70%.

If the allocation of either series of the new notes would result in any holder receiving less than the minimum denomination of $150,000 of a series, the company may adjust the allocation to increase the amount of notes a holder receives of a series to meet the minimum. Any fractional amount after the adjustment will be forfeited.

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

The exchange offer ends at 11 a.m. ET on May 10.

Settlement is expected on May 17.

Instructions must be given for exchange notes in a minimum principal amount of $200,000 and excess integral multiples of $1,000.

By tendering their notes, holders will be deemed to have given their consents under the consent solicitation. Holders may not give consents without tendering their notes.

Background

The company said that since mid-2021 privately owned Chinese property developers and the capital markets that have funded growth of the sector have experienced an inflection point.

The Chinese government kept strict control on the real estate industry. Reduced bank lending for real estate development has resulted in reduced access by property developers to onshore capital. And reduced bank lending for mortgage finance for buyers, as well as concerns of buyers about the ability of property developers to complete projects, has resulted in reduced property sales.

Chinese real estate developers have encountered liquidity issues and debt defaults. Adverse reaction to these credit events by offshore capital markets has limited the company’s funding sources to address upcoming maturities, the company said.

“Since the beginning of 2022, the property sector in China has continued to experience volatility. Reduced bank lending for real estate development, coupled with certain negative credit events, have intensified market concerns over the operations of Chinese property developers and recent outbreak of pandemic in certain areas in the PRC as well as certain lockdown measures.

“As a result, pre-sale of Chinese property developers has generally decreased. The group also experienced a noticeable decline of its aggregate contracted sales in recent months. The aggregate contracted sales of the Group for the three months ended March 31, 2022 were 55% lower compared to the corresponding period ended March 31, 2021.”

The company said it is working on generating cash flow through extending its existing credit facilities, opportunistic financing and conserving spending.

The exchange offer, the company said, aims to extend the company’s maturity profile on terms to allow improvement of its financial condition.

Consent bid for 2023 notes

Under the solicitation of consents for the $200 million of 2023 notes, the company is asking holders of the 2023 notes to approve some changes that would amend the events of default provision in the 2023 notes indenture to carve out any default or event of default in respect of the 2023 notes as a result of a default or event of default occurring under the 2022 notes and to amend the insolvency events of default in line with the terms of the proposed new notes to be issued under the exchange offer and consent solicitation.

The company is offering a consent fee of $2.50 per $1,000 principal amount of 2023 notes to holders who deliver their consents by the expiry, 11 a.m. ET on May 10. Payment is expected to be made on May 17.

Consents are non-revokable.

The solicitation is conditioned on receipt of the required consents, among other conditions.

Details

Morrow Sodali Ltd. (+44 20 4513 6933, +852 2319 4130 or zhongliang@investor.morrowsodali.com) is the information exchange and tabulation agent for the exchange offer and consent solicitation and the information and tabulation agent for the 2023 consent solicitation.

Zhongliang is a residential property management company based in Shanghai.

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