Follow-Up on Sino-Ocean Group

In “Sino-ocean—An Implication of Onshore Bond Rollover on Offshore Bond”, we mentioned that the Group proposed a one-year extension plan in instalments for the onshore bond, “18 Sino-Ocean 01”, and it is highly likely that the Group will default on the USD bonds. In recent two weeks, the Group has made significant progress on both onshore and offshore bonds:

Onshore Bond

According to the creditor meeting on 1 August, the Group’s instalment repayment plan for the onshore bond was rejected by the creditors. Up to 53% of creditors require the Group to repay the principal and interest as scheduled.

However, the Group successfully added a grace period for the “18 Sino-Ocean 01”, which allows the Group to have a one-month grace period to raise funds. This means that the maturity date of "18 Sino-Ocean 01" was changed from 2 August to 1 September.

We believe that the Group will take advantage of this one-month period to raise funds, including seeking help from its major shareholders (China Life Insurance and Dajia Insurance), share placement, boosting cash collection from sales and disposal of assets. However, it may be hard to fill the funding gap of about RMB 2.1 billion within a short period of time.

Offshore Bond

The Group cured the coupon of “SINOCE 2.700% 13Jan2025 Corp (USD)” on the last day of the grace period, which amounted to around USD 7 million. However, the Group proposed consent solicitations to the holders of three USD bonds, in order to extend the coupon payment date (one-time only), as follows (see Table 1):

Table 1: Sino-Ocean Group’s Consent Solicitations

Besides, the Group also amended some clauses related to the default event, in order to waive the default case due to the consent solicitations.

The consent solicitations will be conducted by circulating resolutions by electronic consent or a creditor meeting. If 90% or more of the bondholders have electronically approved the consent solicitations, the term amendments of the bond will be effective.

If the Group cannot pass the consent solicitations through circulating resolution by electronic consent, the Group will hold a creditor meeting. If more than 66% of the bond aggregate principal amount is in favour and more than 75% of the bond aggregate principal amount present at the meeting of creditors are in favour, the term amendments of the bond will be effective.

If the consent solicitations are approved, the Group will pay a consent fee equal to 0.1% of the bond par value to creditors in favour of the consent solicitation upon its effectiveness, which is expected to be on or around 18 August.

Short Commentary

The Group proposed an extension offer for both onshore and offshore bondholders in order to extend the maturity date or delay the coupon payment date. The purpose is to avoid an actual default and to gain more time to improve liquidity. Its willingness to repay is high. However, whether the bonds are onshore or offshore, the above actions of the Group are only stopgap measures. After all, the onshore bondholders are only willing to accept a one-month grace period rather than an installment repayment plan, which is hardly enough for the Group to avoid a default.

Assuming that the consent solicitations of all three USD bonds are approved, whether the Group will be able to pay the USD bond coupons after two months will still depend on the development of the onshore bond "18 Sino-Ocean 01". If the onshore bond is defaulted, rather than being repaid or rolled over, the Group will likely not repay the USD bond coupons (after all, there is already a cross-default, so it is meaningless to keep repaying the coupon). In that case, the Group will likely enter debt restructuring in order to settle the holistic offshore debts in a uniform manner.

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