Bond Update : Redco Properties’ Offshore Debt Restructuring Plan

Redco Properties (1622.HK, “Redco”) has been in default on its offshore U.S. dollar bonds for several years. The Company announced a restructuring framework on 28 August 2026, issued revised terms on 24 September 2026, and has convened a creditors’ meeting for 5:00 p.m. (Hong Kong time) on 16 October 2026. If the proposal is approved — a majority in number of those present and voting, and not less than 75% of the claims so represented — and is then sanctioned by the courts of both jurisdictions, it will be binding on all bondholders.

(The following is for reference only. All details are subject to the original announcement.)

Overview of the restructuring proposal

The restructuring proposal covers the principal and accrues interest on all offshore bonds and on certain offshore loans. The aggregate principal amount of these instruments is approximately US$2.2 billion (see Table 1). As of end-June 2026, the principal and accrued interest on the offshore bonds totalled approximately US$1.27 billion.

Table 1: Offshore bonds covered by the restructuring proposal

Creditors must elect the consideration under the restructuring proposal (see Table 2).

Table 2: Restructuring scheme options

Option 1: Asset-backed instrument

The asset-backed instrument is not a new bond that carries a coupon and can be freely traded in a clearing system. In substance, it is a passthrough instrument. The asset-backed instrument is issued by an independent special-purpose vehicle (an orphan SPV). Residual cash from the projects in Table 3 is first applied to project loans, expenses, taxes and management fees, and is then up streamed through the holding chain to a designated account. The SPV then distributes that cash pro rata to instrument holders.

Table 3: Projects supporting the certificates

Redco has set a “minimum cumulative distribution” target for this pool of projects: from the restructuring effective date through approximately 90 days after the end of 2033, the cumulative target is approximately RMB 2.222 billion (about US$310 million) (see Table 4). If the minimum distribution is not met, there are two consequences. (i) Directors or legal representatives within Redco’s own control may be removed and replaced by persons nominated by the orphan SPV. (ii) The obligors may be required to declare a cash dividend of not less than the shortfall for that period.

Table 4: “Minimum cumulative distribution” targets

Of note, Redco holds only 35% – 51% of some of these projects and cannot replace the responsible persons of its joint-venture partners, so its control over the progress of project monetisation is limited. The asset-backed instrument can be registered in a holder’s name only after the KYC required by the trustee has been completed, and its liquidity is inferior to that of a listed bond. In addition, creditors can only require the obligors to declare the cash shortfall. The obligors have no actual repayment obligation, and the probability of recovering the shortfall is low.

Option 2: Cash

Option 2A pays US$0.5 more, but US$1 of that amount is deferred for about one year and depends on whether the Company can honour it at that time. Option 2B is received in full on the effective date (the date has not been fixed). Options 2A and 2B together are capped at US$1.15 billion of Allocable Amount. Any oversubscription will be scaled back pro rata, and the excess will be reallocated to Option 1. We expect a larger number of creditors to elect Option 2, so a full allocation is not assured.

Short Comment

This proposal is harsh on creditors. Option 1 involves no nominal principal haircut, but even if the minimum cumulative distribution of approximately RMB 2.222 billion is delivered in full, it would amount to only about 14% of outstanding principal. The documents do not disclose independent valuations of the six projects. Redco provides no guarantee, and the uncertainty around distributions is high.

Option 2 exchanges only US$2.5 to US$3 of cash for every US$100 of Allocable Amount, equivalent to a reduction of about 97% to 97.5% of the Allocable Amount. The two cash options together are capped at only US$1.15 billion of Allocable Amount.

Relative to recent peers, Fantasia, CIFI and KWG still retained new bonds, convertible instruments, or Hong Kong project interests that can be ascribed a value. Redco is not issuing a new coupon-bearing bond and is not offering a conversion into equity. The principal instrument is an asset certificate backed by projects in non-tier-1 cities. The scheme consent fee of 0.175% is also at the low end of comparable proposals in recent years. Overall, whether a creditor elects cash or the certificate, the recovery value that can reasonably be expected is very low.

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) the analyst who produced this report holds a NIL position in the abovementioned securities.

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