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After Zhongliang Holdings and China Aoyuan announced the effectiveness of their overseas debt restructuring in March this year, as of now, although the debt restructuring work of other real estate companies has been gradually progressing, few successful cases have emerged again.

Why is the debt restructuring of real estate companies progressing slowly? What are the underlying reasons? Industry insiders believe that factors such as the continued deep adjustment of the real estate market, sluggish sales of real estate companies, and differences in demands between creditors and defaulting real estate companies have all affected the progress of debt restructuring. The key is that real estate companies must come up with restructuring plans that are sincere and diverse in order to convince creditors.

Game from creditors

In March this year, Zhongliang Holdings and China Aoyuan both issued announcements, announcing that all conditions for offshore debt restructuring had been met and would take effect on March 20. Prior to this, R&F Properties, Sunac China, and Contemporary China Holdings had completed offshore debt restructuring.

However, after the restructuring cases of the above two companies, there have been few successful cases so far. On July 11, Longfor Group announced that the existing noteholders holding more than 92% of the total outstanding principal of the existing notes have signed a creditor support agreement. The company is actively negotiating with overseas creditors, including existing noteholders, to achieve a comprehensive and overall restructuring of overseas debts.

On May 29, Fantasia Holdings released a further announcement on its offshore debt restructuring. The announcement disclosed that as of the date of this announcement, creditors holding 81.96% of the company's existing debt instruments have joined the restructuring support agreement.

According to market practice, obtaining support from more than 75% of creditors is a positive indicator of a restructuring plan, which meets the requirements for entering the court process, and also means that the restructuring is close to substantial success. However, as of now, neither Fantasia Holdings nor Longfor Group has disclosed further progress in the restructuring.

However, apart from Fantasia Holdings and Longfor Group, debt restructuring of more real estate companies still faces bargaining and difficulties.

On August 20, Kaisa announced major progress in its overseas debt restructuring, saying that on the same day, Kaisa signed a restructuring support agreement with a group of creditors. The relevant claims accounted for more than 34% of the total outstanding principal of Kaisa's debts and more than 36% of the total outstanding principal of Ruijing's debts.

In October last year, Kaisa issued a debt restructuring announcement and submitted a preliminary indicative restructuring plan for its overseas debts to the creditor group. However, in July last year, Kaisa was filed for liquidation by its creditors. Therefore, if Kaisa wants to avoid liquidation, it needs to win the support of more creditors for the restructuring plan.

On August 15, according to media reports, as the first state-owned developer to be petitioned for liquidation, Sino-Ocean Group has had creditors with more than 50% of the total principal of Group A debt sign a restructuring support agreement. The scope of Sino-Ocean Group's restructuring covers existing debt instruments, including existing syndicated loans, existing bilateral loans and existing notes, with a total outstanding principal of approximately US$5.636 billion. Group A includes syndicated loans and bilateral loans, involving an amount of HK$13.04673 billion plus US$249.75 million.

However, Sino-Ocean Group's debt restructuring is still in the game. On January 5 this year, the creditor group and other creditors filed a statutory debt repayment letter against Sino-Ocean Group. On June 27, the creditor group submitted a liquidation petition against Sino-Ocean Group. On July 17, the Hong Kong court ordered Sino-Ocean Group to submit evidence for liquidation clarification on or before August 21, and rejected Sino-Ocean Group's request for an extension to submit evidence. On July 18, Sino-Ocean Group issued a restructuring support agreement.

On July 24, the law firms Linklaters and Haitong International held a conference call as legal advisors and financial advisors to explain why creditors did not want to sign the restructuring agreement. Linklaters said that it was confirmed that more than 60% of bondholders opposed the restructuring support agreement; the consultants commissioned by the creditor group believed that Sino-Ocean Group could afford additional cash payments in the short term and could also afford a shorter payment period.

In addition, the debt restructuring of Xuhui Holdings, Shimao Group, and Zhenro Properties is still in progress. On July 26, Shimao Group announced that it had revised the creditor support agreement in order to reach a consensus on debt restructuring. Zhenro Properties, which started preparations for overseas debt restructuring at the end of 2022, announced on August 9 this year that the final deadline for the restructuring support agreement was further extended to August 11. These restructurings are still in progress, but no results have been achieved so far.

Sufficient sincerity in the plan is crucial

What difficulties do real estate companies still face in debt restructuring? Liu Shui, director of corporate research at China Index Academy, told reporters that, first, the real estate market is still in deep adjustment and has not improved significantly, and investors lack confidence in the development of the industry. Second, the market sales and other operating performance of individual real estate companies that have completed debt restructuring have not improved significantly. Their negative "demonstration effect" has also cast a shadow on the advancement of debt restructuring of other defaulting real estate companies, increasing the difficulty of negotiations. Third, debt restructuring is complex and the negotiation cycle is long. The demands considered by creditors and defaulting real estate companies are different, and it is difficult to reach a consensus.

Since 2024, the sales volume of commercial housing in China has still dropped significantly, exceeding 20%, and the decline in real estate investment has continued to increase and exceeded 10%. From the perspective of real estate sales, it is still weak. According to the "China Real Estate Enterprise Sales Performance Ranking from January to July 2024" released by China Index Academy, the total sales of the TOP100 real estate companies fell by 40.1% year-on-year. From January to July, there were 6 real estate companies with total sales exceeding 100 billion yuan, 4 fewer than the same period last year, and 51 real estate companies with sales exceeding 10 billion yuan, 34 fewer than the same period last year.

What are the key factors for real estate companies to achieve debt restructuring? From the multiple rounds of negotiations between real estate companies and creditors and successful restructuring cases, it can be seen that a sincere restructuring plan is very important.

Liu Shui said that from the perspective of debt reduction attitude, active actions are conducive to debt restructuring; in terms of restructuring plans, sufficient sincerity and diverse methods are conducive to debt restructuring. Both Sunac and Aoyuan have provided relatively rich disposal methods, including debt and equity. Sunac also provides equity of its subsidiary Sunac Services for creditors to choose from, which can meet the diverse needs of creditors; from the perspective of asset conditions, high-quality assets are conducive to debt restructuring.

After a “breathing break”, market sales still need to stabilize and recover

Although the restructuring has been successful temporarily, the debt has been extended, the liabilities have been reduced, and the real estate companies have a breathing space, but the pressure from the sales side is still not small. "For companies that have successfully restructured their debts, the short-term debt repayment pressure will be significantly reduced, the domestic debt will be significantly extended, part of the foreign debt will be debt-to-equity swaps, and the other part will generally be extended in multiple installments for 3-8 years. However, if the real estate market does not improve significantly in about two years, and the sales of real estate companies do not recover significantly, the debt repayment pressure faced by companies that have successfully restructured their debts will still be relatively large in the later stage." Liu Shui said.

In the first seven months of this year, Sunac China achieved a cumulative contract sales amount of approximately RMB 27.69 billion, Zhongliang Holdings Group achieved a cumulative contract sales amount of approximately RMB 11.02 billion, and R&F Properties achieved a cumulative total sales revenue of approximately RMB 6.38 billion, which are far from their peak periods.

For real estate companies that have successfully restructured, the key to achieving healthy operations lies in the stabilization and recovery of market sales. Liu Shui said, "The obvious improvement in real estate sales will lead to more sales proceeds to support the company's cash flow, financial investment institutions will regain confidence in the development of the industry, the financing environment for real estate companies will be more relaxed, and more funds can be raised to increase liquidity, which will gradually restore the company's land acquisition, development and construction, and put the real estate company's operations on a healthy track."

Beijing News reporter Duan Wenping

Editor: Xu Qian

Proofread by Wang Xin