Fantasia’s proposed restructuring plan

After 15 months since its default on 4 Oct 2021, Fantasia finally announced a proposed restructuring of its offshore debts on the evening of 13 Jan 2023. The proposal focuses on the offshore debts and does not include onshore debts.

It should be noted that the details mentioned in the announcement are preliminary and have not yet been finalized, so they can only be used for reference (some sensitive information in the term sheet has also been obscured).

Currently, Fantasia has entered into a restructuring support agreement (“RSA”) with a group of major creditors holding 24.5% of the outstanding USD bonds (“Ad Hoc Group”), which the RSA is expected to be revised and become effective on or before 9 Mar 2023. The final restructuring plan will be announced by Fantasia as soon as possible after the effective date, and the bondholders will not be required to give any instructions until then.

Because of the lengthy content in the announcement, this article will consolidate some of the key details, including the company's operating and debt overview, debt-to-equity conversion and bond maturity extension plan, while the remaining details cannot be fully covered. 

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

Operating and Debt Overview

As of 30 Nov 2022, Fantasia had total offshore debts of approximately USD 4.2 billion (including USD 4.018 billion of USD bonds) and total onshore debts of not more than RMB 40 billion.

However, if we take into account other debts guaranteed by Fantasia, the total amount of its existing offshore debts subject to the restructuring plan may reach approximately USD 4.6 billion.

On the other hand, if the company’s business operations return to normal, the unlevered free cash flows from existing projects during the period from 2023 to 2030 is estimated to be between RMB 40 billion and 70 billion approximately.

Based on the abovementioned debt status and projected cash flows, Fantasia has come up with the following proposed restructuring plan.

Proposed Restructuring Plan

The restructuring plan set forth in the term sheet will cover all 13 offshore USD bonds, and the company will be able to include other guaranteed debts in the plan at its sole discretion.

First of all, Gortune and controlling shareholder Zeng Jie Baby will inject USD 100 million and USD 15 million respectively in the form of borrowings to Fantasia (“Initial New Money”). At the same time, the company will also attempt to raise an extra USD 100 million through financing over its projects (“Additional New Money”).

Of the Initial New Money, around USD 90 million will be used for bond repurchase, potentially in a Reverse Dutch Auction tender offer (where the bondholders will each offer to sell back the bonds and the company will repurchase them at an equilibrium price), provided that the offer price does not exceed $15. Of the Additional New Money (if the financing plan is successful), around USD 85 million will be used to repurchase the bonds on a pro rata basis, with the format to be agreed between the company and the Ad Hoc Group.

Next, the company proposes to convert an aggregate amount of USD 1.3 billion of debts into newly issued ordinary shares of HK-listed Fantasia Holdings (stock code: 1777.HK). At the same time, all of the company's outstanding shareholder loans (amount undisclosed) will also be converted into ordinary shares. Upon completion of the share issuance, the controlling shareholder Zeng Jie Baby, will still hold at least 45% equity interest in Fantasia and will continue to be the largest controlling shareholder of the company, while the existing creditors (excluding Gortune) will collectively hold at least 52.6% equity interest in Fantasia.

After that, the company will convert the remaining amount of debts into eight new bonds (the issue size depends on the total debt amount and the outcome of bond repurchase with those new money), and the details of these new bonds are as follows (see Table 1).

• From 31 Dec 2022 to 30 Jun 2023, the coupon shall be paid in kind

• From 30 Jun 2022 to 31 Dec 2023, at least 0.5% of the coupon shall be paid in cash

• For full year 2024, at least 3% of the coupon shall be paid in cash

• For every following year, all coupon shall be paid in cash

• Coupon shall be payable semi-annually. The coupon rate per annum shall step up by 2% if any portion of coupon with respect to such interest payment period is paid in kind

• The issue size of tranche G and H shall be 50% of the aggregate issue size of the new bonds minus the total issue size of tranche A to F

• The minimum denomination of each new bond is USD 1,000

Table 1: Details of Eight New Bonds

Fantasia has also proposed some credit enhancement measures, including a pledge over shares of Colour Life held by the company that are not in dispute, as well as arranging designated onshore projects into an asset package (the list is undisclosed). Upon consummation of the sale of any item on the list, an amount equal to 40% of the net consideration shall be used for the cash sweep repayment (the mechanism is undisclosed) of the new bonds within 90 days.

Short Commentary

With the USD bond prices of Fantasia’s curve rose to $15 or above after the preliminary proposal was announced, the plan to repurchase the bonds at below $15 may be difficult to execute and may not be able to effectively reduce the total size of existing offshore debts, which is close to USD 4.6 billion.

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).

On the other hand, since the list of asset package, consent fee and amount of shareholder loans are not publicly disclosed, the Ad Hoc Group (member list is undisclosed) that has access to these important information will play a crucial role to act as a gatekeeper for other creditors. If the restructuring plan is approved, Fantasia will report several debt-related matters to the Ad Hoc Group. The group can even discuss directly with the company and make decision on various terms, including the approach to repurchase the bonds with the aforementioned new money, as well as the alternatives if the company failed to resume trading (such as issuing convertible bonds). Nonetheless, under normal circumstances, all creditors in this restructuring plan should receive a fair and consistent consideration.

Since the details have not yet been finalized, we will provide another update when Fantasia announces its final restructuring plan and requests a vote from bondholders. We will then further comment on the overall attractiveness of the proposal.