Zhongliang to issue $201.44 million 8¾%, $428.4 million 9¾% notes to settle exchange

By Wendy Van Sickle

Columbus, Ohio, May 17 – Zhongliang Holdings Group Co. Ltd. announced the results of its 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 said Tuesday it plans to issue $201,435,116 of 8¾% notes due April 2023 and $428,400,884 of 9¾% senior notes due December 2023 to settle the exchange.

Settlement is expected on May 19.

As reported on April 28, the company was offering to exchange at least $260.82 million, or 90%, of the $289.8 million outstanding 8½% senior notes due May 2022 (ISIN: XS2341214059) and at least $395.55 million, or 90%, of the $439.5 million outstanding 9½% senior notes due July 2022 (ISIN: XS2247412518).

The company said it received tenders to exchange $262,172,000, or 90.47%, of the May 2022 notes and $367,664,000, or 83.66%, of the July 2022 notes by the deadline of the offer at 11 a.m. ET on May 16. The company said it waived the minimum acceptance amount for the July 2022 notes.

The exchange offers had initially been set to expire at 11 a.m. ET on May 10, but the deadline was extended.

The company was also holding a consent solicitation for the 12% senior notes due April 2023, which also expired at 11 a.m. ET on May 16 after having been extended. The company said it received the requisite consents under that solicitation to effect the proposed amendments.

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

The company offered $1,000 of new notes for each $1,000 of notes tendered plus $10 in incentive fee cash and any accrued interest. The new notes will be a combination of dollar-denominated 9¾% senior notes due December 2023 and dollar-denominated 8¾% senior notes due April 2023.

The total amount of December 2023 notes to be issued was not to 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%.

By tendering their notes, holders were deemed to have given their consents under the consent solicitation. Holders could 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 asked holders of the 2023 notes to approve some changes to 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 offered a consent fee of $2.50 per $1,000 principal amount of 2023 notes to holders who deliver their consents by the expiry. Payment is expected to be made on May 18.

Consents were non-revokable.

The solicitation was 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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