Fantasia rolled out restructuring plan

Restructuring Plan

On 9 March, the restructuring support agreement (“RSA”) between Fantasia and major creditors became officially effective. The company announced the finalized restructuring plan and asked other bondholders to participate in the RSA. The plan is essentially the same as the term sheet previously released in January, please refer to our “Fantasia’s proposed restructuring plan” for details.

In this announcement, although Fantasia has not disclosed the member list of the major creditor group, it has made public several other important pieces of information, including but not limited to:

• If the company cannot hire an auditor by end-March and publish its 2021 audited financial report by end-June, it will constitute an event of default (the auditor whitelist consists of 11 companies, including the ‘Big 4’ accounting firms)

• Shareholder loans, including nine loans comprising around USD 170 million

• List of other guaranteed debts (see Table 1)

• List of onshore asset package (see Table 2)

This scheme is applicable to all 13 existing USD bonds. As it is not an exchange offer but a restructuring plan through the Hong Kong and Cayman courts, it requires only 75% approval to pass and then should be binding on all bondholders.

The deadline for participating in the RSA is 30 March 2023, and the participated bondholders will receive a consent fee of 0.1% of the bond’s face value.

Table 1: List of Other Guaranteed Debts

Table 2: List of Onshore Asset Package

Commentary

Similar to what we commented last time, according to the debt-to-equity plan, around 30% of the total debts (USD 1.3 billion) will be exchanged into roughly 53% of the company's equity, which is worth only about USD 80 million if we calculate by the company's market value of USD 150 million before the trading halt. Therefore, unless the market capitalization of Fantasia can triple up after the resumption of trading, the recovery value of the debt-to-equity part will be lower than the current bond prices.

The remaining 70% of the company's debts will roll over. Considering that the amount of this part could reach USD 3.3 billion, the issue size for new bond tranches G and H could be USD 600 million each. If it is the case, the weighting of the new bonds from Tranches A to H would be 6%, 6%, 9%, 12%, 15%, 15%, 18% and 18% respectively, and the maturity extension would range from 2 to 6.5 years (from end-2022).

Compared to the restructuring plans from other Chinese real estate developers, the length of the maturity extension is acceptable given the size of Fantasia’s offshore debt. As for the consent fee, it is basically negligible because the amount is only 0.1% of the face value.

On the other hand, the overall quality of the asset package offered by the company is mediocre, as most of the projects are residential units and shopping malls that were completed years ago, and it is unlikely to liquidate them within a short period. The company mentioned that 40% of the net consideration generated from project sales shall be used for the bond repayment, but also emphasized that it can only complete the cash sweep if it is not prohibited by any regulations. As a result, there is nothing the creditors can do if the cash sweep fails to consummate because of the sales proceeds are being regulated.

Overall, the restructuring plan does not look very attractive. However, considering the lack of offshore assets held by Fantasia, the recovery value of the USD bonds under a full liquidation should be minimal. In addition, the proposal came out after a long-awaited negotiation between the company and the major creditor group, we believe that this is probably the best offer Fantasia can come up with at this moment.

From the bond price perspective, currently the Fantasia’s USD bonds are trading at $13 to $15 level. Even if we assume the recovery value from the debt-to-equity conversion is close to zero, investors can still recover an amount roughly equivalent to the current price if the company can pay off the first two tranches at the end of 2024 and 2025 respectively. Therefore, it may be a better choice to accept the restructuring plan.

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds positions in FTHDGR 6.950% 17Dec2021 Corp (USD) and FTHDGR 7.950% 05Jul2022 Corp (USD), and the analyst who produced this report holds a NIL position in the abovementioned securities.

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