Scenery Journey and Tianji’s Restructuring Plans (Updated on 11 April)

On 3 April, Scenery Journey and Tianji Holdings published their finalized restructuring plans, citing that it has signed the restructuring support agreement (“RSA”) with ad hoc offshore creditor group (representing over 35% of Scenery Journey’s outstanding bonds), and hereby asking other bondholders to participate in the RSA.

These two schemes are applicable to all existing Scenery Journey’s USD bonds and requires 75% creditors’ approval to pass. As it is not an exchange offer but a restructuring plan through the court, it should be binding on all bondholders shall it becomes effective.

The bondholders participating in Tianji’s restructuring plan will receive a consent fee of 0.25% of the bond’s face value (payment-in-kind), and the consent fee deadline is 27 April 2023.

This article would discuss Scenery Journey’s bonds (TIANHL) and the proposed restructuring plan of Scenery Journey and Tianji Holding. For more information on the proposed restructuring plan of Evergrande’s bonds (EVERRE), please refer to the article “Evergrande’s Proposed Restructuring Plan”.

It is important to note that Tianji Holding is a wholly-owned offshore subsidiary of Hengda Real Estate, the onshore entity of China Evergrande. Scenery Journey is one of the subsidiaries of Tianji Holding. Tianji Holding mainly engaged in property development in Mainland China. It has around 40 project companies in Mainland China. Accordingly, Scenery Journey and Tianji Holding can be considered as a small portion of China Evergrande’s real estate business.

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

Scenery Journey’s Restructuring Plan

Scenery Journey’s proposed restructuring plan will cover four USD bonds issued by Scenery Journey (TIANHL) (Table 1) (called “SJ Old Bonds”). The “Entitlement” of these SJ old bonds will be counted on a “Deficiency Basis” as follows:

Entitlement = Outstanding Principal Amount + Accrued and Unpaid Interest (as of the restructuring effective date, expected to be 1 October 2023) – Eligible Assessed Value of Any Related Rights (to be confirmed by third parties) 

Table 1: Details of SJ Old Bonds

Upon confirmation of the Entitlement of each creditor, the company will issue five new bonds (called “SJ New Bonds”) (Table 2), with a maximum principal amount of USD 6.5 billion (actual issue size to be confirmed) for the consideration of the restructuring plan. The consideration will be allocated on a pro-rata basis according to the “Entitlement” of SJ Old Bonds. Investors have to note that the principal amount of SJ New Bonds might not cover the entire entitlement of SJ Old Bonds. 

The details of SJ New Bonds are as follows:

• The issuer could choose to pay part of all of the coupon in kind in the first four years. The coupon rate shall step up by 1% if any portion of coupon with respect to such coupon payment period is paid in kind.

• From 31^st to 36^th month after the issuance of the new bonds, at least 0.7% (of the par value) of the coupon shall be paid in cash.

• From 37^st to 48^th month after the issuance of the new bonds, at least 3.0% (of the par value) of the coupon shall be paid in cash.

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

• The coupon shall be payable semi-annually.

Table 2: Details of SJ New Bonds

The issuer also proposes credit enhancement measures and includes terms to protect the bondholders, including:

• SJ New Bonds are guaranteed by Tianji Holding, its subsidiary guarantors (some of which are different from SJ Old Bonds’) and additional guarantors (19 subsidiaries). Hengda Real Estate will still provide a keepwell agreement for SJ New Bonds.

• The collaterals of SJ New Bonds include some company shares held by Tianji Holding (34 subsidiaries) and some intercompany receivables by Tianji Holding (to be confirmed).

• If there is net considered from the sales of the collaterals, the cash proceeds should be used to redeem either or both of the two tranches of SJ New Bonds with the shortest maturities at that time.

• If there are any dividends received by Tianji Holding from its restricted subsidiaries, or any repayment of intercompany receivables from subsidiaries, 90% of such cash proceeds should be used to redeem either or both of the two tranches of SJ New Bonds with the shortest maturities at that time.

• Tianji Holding has to hire an auditor by the end of this year to audit its financial statements. The auditor should be included in the whitelist (the auditor whitelist consists of 11 companies, including the ‘Big 4’ accounting firms).

• The proceeds from 35 onshore projects, fully or partial owned by Tianji Holding, are restricted and only used to repay the onshore debt under the project level, ensure delivery of homes and repay the liabilities or obligations of Tianji Holding and its subsidiaries (other than intercompany payables to China Evergrande and its subsidiaries). The proceeds should not be used for new projects.

Tianji’s Restructuring Plan

Table 3: Details of TJ New Bonds

Short Commentaries of Scenery Journey and Tianji’s Plans

After the announcement of restructuring plans, SJ Old Bonds rose from $6.5 to around $9. It is because of the shorter-than-expected extension period (4 to 8 years) and terms which are simpler than Evergrande’s plan.

Under these two plans, the repayment priority of SJ New Bonds apparently is higher than that of TJ New Bonds. After the approval of the proposals, it is expected that SJ Old Bonds will be replaced with a large portion of SJ New Bonds and a very small portion of TJ New Bonds.

The recovery value of SJ New Bonds will depend on whether the related property projects could be operated as usual and whether the related underlying assets could be sold at a reasonable price. The recovery value of TJ New Bonds will depend on the disposal price of China Evergrande Centre, the value of E-house shares and other collaterals and whether the HKD 521 million loan can be received.

These factors determine whether the companies have the ability to repay the first tranche of principal of SJ and TJ New Bonds and repay partial coupons in cash. After all, whether the holders receive the real cash are the key of holding these bonds.

We believe that the holders of SJ Old Bonds could consider accepting the plans, which gives the company a few years to resume project operations and property sales and gradually dispose the assets on hand at a better price. Despite low visibilities 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 than the proceeds from directly selling at the current price.

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

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