(The following information is for reference only and the details are subject to the original announcement.)
On July 2, China Aoyuan ("Aoyuan") announced its restructuring plan which could be classified into two restructuring plans: AddHero Proposed Restructuring Plan and Aoyuan Proposed Restructuring Plan, as shown in Table 1:
Table 1: Creditor Types and Restructuring Plans
| Creditor Type | Debt Details | Outstanding Amount (USD) | Restructuring Plans |
| The first type | The bonds issued or guaranteed by Aoyuan (including
private bonds) (collectively referred to as "Aoyuan Old Bonds") |
Around 3.55 billion (see Table 2) |
AddHero Proposed Restructuring Plan Aoyuan Proposed Restructuring Plan |
| The second type | Three offshore unsecured loans borrowed or guaranteed by Aoyuan and Add Hero | Around 620 million | AddHero
Proposed Restructuring Plan Aoyuan Proposed Restructuring Plan |
| The third type | Other offshore loans issued or guaranteed by Aoyuan | Around 2.11 billion | Aoyuan Proposed Restructuring Plan |
| The fourth type | Onshore loans or onshore debts | / | / |
| Sources: Company’s
Announcements, Company’s Restructuring Proposal Presentation, iFAST
compilations Data as of 10 July 2023 |
|||
Table 2: Outstanding Aoyuan
Old Bonds
|
Bond Name |
Outstanding Principal Amount (USD) |
|
CAPG 4.200% 20Jan2022 Corp (USD) |
188 million |
|
CAPG 8.500% 23Jan2022 Corp (USD) |
500 million |
|
CAPG 5.375% 13Sep2022 Corp (USD) |
250 million |
|
CAPG 8.500% 13Jan2022 Corp (USD) |
50 million |
|
CAPG 7.950% 19Feb2023 Corp (USD) |
475 million |
|
CAPG 6.350% 08Feb2024 Corp (USD) |
460 million |
|
CAPG 7.950% 21Jun2024 Corp (USD) |
200 million |
|
CAPG 5.980% 18Aug2025 Corp (USD) |
230 million |
|
CAPG 6.200% 24Mar2026 Corp (USD) |
350 million |
|
CAPG 5.880% 01Mar2027 Corp (USD) |
350 million |
|
CAPG Private Bond Due on 2022 |
200 million |
|
CAPG Private Bond Due on 2023 |
200 million |
|
Noble Prestige Bond |
100 million |
|
Total |
3.553 billion |
|
Sources: Company’s Announcements, iFAST compilations Data as of 10 July 2023 |
|
Aoyuan's ad hoc group ("AHG") (representing around 33% of Aoyuan Old Bonds) have duly executed the terms of the restructuring agreement. These schemes require 75% of creditors’ approval to pass. The two restructuring plans depend on each other: if one plan does not take effect, the other plan will not take effect.
The participating bondholders will receive a consent fee of 0.25% of the bond's face value (paid in cash) and a share of an additional USD 100 million of Aoyuan New Bonds (as defined below). The deadline is 31 July 2023.
As it is not an exchange offer but a restructuring plan through the court, it should be binding on all eligible debtholders when it becomes effective. The bondholders will receive five types of bonds or equity-linked instruments (as defined below) (see Table 3):
Table 3: Expected Consideration of Aoyuan Old Bonds
|
Principal of Aoyuan Old Bonds* |
Consideration |
Remark |
|
Around 28% Principal |
/ |
Direct haircut |
|
Around 38% Principal |
AddHero New Bonds (Three in Total) |
Around 14%, 11% and 14% principal will be converted to Tranche A, Tranche B and Tranche C of AddHero New Bonds respectively. |
|
Around 7% Principal |
Aoyuan New Bonds |
/ |
|
Around 3% Principal |
Aoyuan Shares |
Creditors would face a large degree of an indirect haircut. |
|
Around 2% Principal |
Aoyuan Mandatory Convertible Bonds |
Creditors would face a certain degree of an indirect haircut. |
|
Around 22% Principal |
Aoyuan Perpetual Bonds |
Creditors could view it as a direct haircut. |
|
*The final consideration will be depended on different factors, such as the bond coupon, tenor and total debt claims. The number is for reference only. Sources: Company’s Announcements, Company’s Restructuring Proposal Presentation, iFAST compilations Data as of 10 July 2023 |
||
AddHero Proposed Restructuring Plan / AddHero New Bonds (Around 38% Principal of Aoyuan Old Bonds)
The AddHero Proposed Restructuring Plan would cover all Aoyuan Old Bonds and some offshore loans, and allocate the following compensation on a proportional basis based on their outstanding principal amount and accrued interest:
- Three AddHero New Bonds, issued by Add Hero Holdings Limited, with a principal amount of USD 1.8 billion (see Table 4)
- The remaining cash amounts in the six designated accounts
Table 4: AddHero New Bonds
|
|
Issue Size (USD) |
Coupon Rate |
Tenor (starting from the restructuring effective date) |
|
Tranche A |
650 million |
7.5% |
6 years |
|
Tranche B |
500 million |
8% |
7 years |
|
Tranche C |
650 million |
8.8% |
8 years |
|
Total |
1.8 billion |
/ |
/ |
|
Sources: Company’s Announcements, iFAST compilations Data as of 10 July 2023 |
|||
The details of AddHero New Bonds are as follows:
- The issuer must repay USD 150 million and USD 200 million of Tranche A in 3 years (expected to be September 2026) and 5 years (expected to be September 2028) respectively after the restructuring effective date.
- The issuer may choose to pay the coupon in kind in the first 2.5 years. The coupon rate shall increase by 1% if any portion of the coupon for that payment period is paid in kind. From the first 2 years to the first 2.5 years, at least 2% (of the par value) of the coupon shall be paid in cash.
- For every year after the first 2.5 years from the restructuring effective date, all coupons shall be paid in cash.
- The coupon shall be payable semi-annually.
- The issuer could further amend key clauses, such as waivers of defaults, coupon rates and/or maturity dates if over 75% of bondholders accept the amendment.
The issuer also proposes credit enhancement measures and includes terms to protect bondholders, including:
- A package of assets as credit enhancement, such as company shares of Impact Global, Helio Health and GBA Cultural, investment properties directly held by offshore entities and all offshore projects. The company may dispose of these assets within two years from the restructuring effective date, with the proceeds used to redeem the AddHero New Bonds.
- Intercompany receivables and debts as collateral and guarantees for the AddHero New Bonds.
- Subsidiary guarantors.
- Injecting 15% and at least 35% equity interests of the onshore urban renewal projects into two onshore SPVs, which are directly held by a newly-established offshore SPV. Proceeds from these urban renewal projects (including distribution or disposal) will be used to redeem the AddHero New Bonds.
- Some of Aoyuan shares owned by Mr. Guo Zi Wen, Aoyuan's chairman (expected to be 10% of Aoyuan shares after restructuring) and all shares of Aoyuan Healthy Life will be pledged as collateral for the New AddHero Bonds, until either the New AddHero Bonds are fully redeemed or the put option of Aoyuan Mandatory Convertible Bonds is triggered.
- Within six months after Aoyuan Healthy Life shares resume trading, at least 85% of shares owned by Mr. Guo Zi Wen will be sold to the market, with proceeds borrowed as an interest-free loan to Add Hero to repay interest and mandatorily redeem the AddHero New Bonds.
- The issuer may repurchase the AddHero New Bonds with the shortest maturity via a Reverse Dutch Auction tender offer at a purchase price higher than the sum of the market price and a 10% premium on par value.
- In the event that AddHero New Bonds remain outstanding, if the issuer redeems or repurchases the Aoyuan Perpetual Bonds, it will constitute a default.
Aoyuan Proposed Restructuring Plan
The Aoyuan Proposed Restructuring Plan would cover almost all Aoyuan’s offshore debts, including the first three types of creditors mentioned in Table 1.
For the holders of Aoyuan Old Bonds, the actual allocation
amount should be based on a waterfall framework. It means that the holders
would get AddHero New Bonds first (representing around 38% principal of Aoyuan
Old Bonds), and then, after deducting the principal amount of AddHero New Bonds,
the remaining part of outstanding amounts of Aoyuan Old Bonds would participate
in the allocation in the Aoyuan Proposed Restructuring Plan. The participants
would be allocated based on the following compensation on a proportional basis:
- Aoyuan New Bonds, with a principal amount of USD 400 million
- Aoyuan Shares of 1.4 billion (1 billion newly issued by the company and 400 million transferred from Mr. Guo Zi Wen, Aoyuan's chairman)
- Aoyuan Mandatory Convertible Bonds, with a principal amount of USD 143 million
- Aoyuan Perpetual Bonds, with a principal amount of USD 1.6 billion
In addition, Mr. Guo Zi Wen, Aoyuan's chairman, will
unconditionally waive all of his existing shareholders' loans and Aoyuan Old
Bonds (the principal amount of around USD 5 million).
Aoyuan New Bonds (Around 7% Principal of Aoyuan Old Bonds)
Eligible creditors will receive the Aoyuan New Bonds (in the principal amount of USD 400 million, or USD 500 million after taking into account the consent fee) on a pro-rata basis, issued by China Aoyuan. The details of Aoyuan New Bonds are as follows:
- The maturity date is 8 years from the restructuring effective date.
- The coupon rate is 5.5%, paid semi-annually and paid in kind.
- The Aoyuan Healthy Life shares owned by Aoyuan (around 25% of Aoyuan Healthy Life shares) would be used for the guarantee and collateral of the Aoyuan New Bonds.
- All dividends from Aoyuan Healthy Life or proceeds from the sale of the Aoyuan Healthy Life shares must be used to redeem the Aoyuan New Bonds.
- After the redemption of all AddHero New Bonds, the Issuer may repurchase the Aoyuan New Bonds by Reverse Dutch Auction offer at a purchase price higher than the sum of the market price and a 10% premium on par value.
- In the event that Aoyuan New Bonds remain outstanding, if the issuer redeems or repurchases the Aoyuan Perpetual Bonds, it will constitute a default.
- The issuer could further amend key clauses, such as waivers of defaults, coupon rates and/or the maturity date if over 75% of bondholders accept the amendment.
Eligible creditors will receive a total of 1.4 billion shares of Aoyuan (stock code: 3883.HK) on a pro-rata basis, representing around 35% of the total number of shares after the restructuring plan is effective. The conversion price is HKD 1.06 per share.
The theoretical value of this part is about USD 191 million. However, due to the issuance of a large number of new shares (1 billion new shares), the lack of significant improvement in operating conditions, the weak solvency of the company and the significant decrease in its net asset value, we believe that after Aoyuan resumes trading, its share price will fall sharply and be much lower than the conversion price of HKD 1.06. Therefore, the creditors will face a greater degree of indirect principal haircut.
Aoyuan Mandatory Convertible Bonds (Around 2% of Aoyuan Old Bonds Principal)
Eligible creditors will receive up to USD 143 million principal amount of Aoyuan Mandatory Convertible Bonds on a pro-rata basis, which represents around 2% of the principal of Aoyuan's old bonds. The details of the Aoyuan Mandatory Convertible Bonds are as follows:
- The bond will mandatorily convert into approximately 1.69 billion Aoyuan shares, representing around 30% of total shares after the restructuring effective date and the conversion of the mandatory convertible bonds, on the maturity date (5 years after the restructuring effective date) at a share conversion price of HKD 0.66 per share.
- The bond has a put option and a call option. If a strategic investor acquires 10% or more of Aoyuan shares within one year from the restructuring effective date, bondholders can exercise their put option to require the issuer to redeem the bond at par value. Meanwhile, the strategic investor could exercise their call option to redeem the bond at par value.
- The bond is a zero coupon bond.
- The issuer can further amend key clauses, such as waivers of defaults, coupon rates, and/or the maturity date if over 75% of bondholders accept the amendment.
While the theoretical value of this part is about USD 143 million, we believe that there is still a high probability that Aoyuan's share price will remain below the conversion price of HKD 0.66 after 5 years. Therefore, creditors may face a certain degree of an indirect principal haircut.
Aoyuan Perpetual Bonds (Around 22% Principal of Aoyuan Old Bonds)
Eligible creditors will receive Aoyuan perpetual bonds up to USD 1.6 billion principal amount of Aoyuan Perpetual Bonds on a pro-rata basis, issued by China Aoyuan. The coupon details are shown in Table 5:
Table 5: Coupon Rates of Aoyuan Perpetual Bonds
|
Years from the restructuring effective date |
Coupon Rate |
Form |
|
Year 1 to Year 8 |
0% |
/ |
|
Year 9 to Year 10 |
1% |
Either paid by cash or paid in kind |
|
Year 11 to Year 12 |
2% |
|
|
Year 13 to Year 14 |
3% |
|
|
Year 15 to Year 16 |
5% |
|
|
Year 17 to Year 18 |
7% |
|
|
Year 19 to Year 21 |
9% |
|
|
After Year 22 |
Increase by 3% per year |
|
|
Sources: Company’s Announcements, iFAST compilations Data as of 10 July 2023 |
||
The coupon rate on the Perpetual Bonds will increase by 15% per annum in the event of a debt default event of Aoyuan, resulting in an acceleration of other debts prior to its stated maturity (the amount of debt in default or cross-default exceeds USD 10 million).
After the redemption of all AddHero New Bonds and Aoyuan New Bonds, the issuer may repurchase the Aoyuan New Bonds by reverse Dutch auction offer at a purchase price higher than the sum of the market price and a 10% premium on par value.
The theoretical value of this part is USD 1.6 billion. However, creditors could treat it as a principal haircut. In the foreseeable future, no cash coupon will likely be paid on these perpetual bonds as the issuer has the option to pay the coupon in kind indefinitely, thus avoiding cash payments.
Short Commentaries on Restructuring Plans
Aoyuan’s restructuring plans are of poor quality, involving significant direct and indirect principal haircuts. However, there is sincerity in the restructuring proposal, given that the major shareholder, Mr. Guo Zi Wen, waives part of his shareholdings, all of his USD bonds and shareholder loans. The company puts all of its offshore assets and a few onshore assets as credit enhancement. This is considered to be a joint effort with the creditors.
AddHero New Bonds form the core part of the plans. As the company intends to dispose of assets after restructuring, and the proceeds will be used to redeem the AddHero New Bonds. This could increase the likelihood that the company will be able to repay the first part of the AddHero New Bonds in three years, representing around 3% of the principal of Aoyuan Old Bonds.
The value of Aoyuan Perpetual Bonds is significantly lower than that of the shares and new bonds, if not close to zero. Creditors may consider this a direct principal haircut. Only if Aoyuan could turn around and repay both the AddHero New Bonds and Aoyuan New Bonds in the next ten years, Aoyuan could repay the coupon in cash or redeem the perpetual bonds.
In the end, we believe that the holders of Aoyuan Old Bonds
could consider accepting the plans, which gives the company a few years to
resume project operations, property sales and gradually dispose of assets on
hand at a better price. Despite the low visibility of these factors at the
moment, we believe that if the holders are willing to wait, they could expect
to receive more cash from these bonds and from the disposal of shares than the
value from directly selling the bond at the current price.
Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds a NIL position and the analyst who produced this report holds a NIL position in the abovementioned securities.
