Back in early 2023, Fantasia has announced a proposed restructuring plan for its offshore debts. Then, the participation rate of the restructuring support agreement reached 76.4% as of May last year, which has already met the threshold requirement. However, the company has not taken any further actions since then, mainly due to the fact that the company’s second largest shareholder, TCL Industries Holdings, objected to the debt-to-equity conversion and sabotaged the restructuring plan.
As a result, after a one-year delay, Fantasia announced a new restructuring plan at the evening on 29 April 2024. The overall framework of the new plan is still similar to the original plan (please refer to ‘Fantasia’s proposed restructuring plan’ and ‘Fantasia rolled out restructuring plan’), but with some changes on the terms such as the tenor and coupon rate of the new bonds. It is reported that the second largest shareholder TCL has made a concession this time and will agree to the debt-to-equity conversion of the plan.
As the time of the announcement of the proposal, Fantasia has entered into a restructuring support agreement (“RSA”) with an ad-hoc creditor group holding 32% of the outstanding principal of USD bonds (“AHG”). The company is now asking other bondholders to participate in the RSA.
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 21 May 2024, and the participated bondholders will receive a consent fee of 0.1% of the bond’s face value.
(The following information is for reference only and the details are subject to the original announcement.)
The New Restructuring Plan
The scheme creditors’ claims in the restructuring plan will cover all 13 offshore USD bonds and other guaranteed debts (the principal amounts are around USD 4,020 million and 610 million respectively), including the accrued interest up to 31 December 2022.
First, the controlling shareholder Zeng Jie Baby will inject USD 6 million in the form of borrowings to Fantasia to fund the fees and expenses (the aggregate amount of consent fee, AHG’s work fee and advisor fee is USD 21 million).
Next, the company proposes to convert an aggregate amount of USD 1.3 billion of scheme creditors’ claims and all of the 9 company's outstanding shareholder loans (the principal amount is USD 170 million) into newly issued ordinary shares of HK-listed Fantasia Holdings (stock code: 1777.HK), with the conversion prices of both cases undisclosed yet. Upon completion of the share issuance, the controlling shareholder Zeng Jie Baby, will still hold approximately 40% stakes in Fantasia and will continue to be the largest controlling shareholder of the company, the minority shareholders (including TCL) will hold around 14.8% stakes, and the existing creditors will collectively hold around 45.2% stakes.
After that, the company will convert the remaining amount of debts into 8 new bonds, and the details of these new bonds are as follows (see Table 1).
Table 1: 8 New Bonds’ Details
| Issue Size (million USD) | Coupon Rate | Maturity Date | |
| Tranche A | 200 | 4.50% | 31/12/2026 |
| Tranche B | 200 | 4.75% | 31/12/2027 |
| Tranche C | 300 | 5.00% | 31/12/2028 |
| Tranche D | 400 | 5.25% | 30/6/2029 |
| Tranche E | 500 | 5.50% | 31/12/2029 |
| Tranche F | 500 | 5.75% | 30/6/2030 |
| Tranche G | TBC | 6.00% | 31/12/2030 |
| Tranche H | TBC | 6.50% | 30/6/2031 |
| Source: Company Announcements, iFAST Compilations Data as at 29 April 2024 | |||
- Interest of the new bonds shall accrue from 31 December 2022
- The company may extend the maturity date of Tranche A to D bonds by one year (by paying an extension fee equal to 0.3% of the principal amount of such tranche)
- If the company decides to extend the maturity, the coupon rate over the extension period shall step up by 2%
- Tranche A to C:
- From 31 Dec 2022 to 30 Jun 2025, the coupon shall be paid in kind
- From 1 Jul 2025 to 31 Dec 2025, at least 0.3% of the coupon shall be paid in cash
- From 1 Jan 2026 to 31 Dec 2026, at least 0.5% of the coupon shall be paid in cash
- From 1 Jan 2027 to 31 Dec 2027, at least 4% of the coupon shall be paid in cash
- For every following year, all coupon shall be paid in cash
- Tranche D to H:
- From 31 Dec 2022 to 31 Dec 2026, the coupon shall be paid in kind
- From 1 Jan 2027 to 31 Dec 2027, at least 4% 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 1% 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
Fantasia has also proposed some credit enhancement measures, including a pledge over shares of Colour Life held by the company (but it is subject to the conclusion of the dispute with TFI Securities on underlying shares), as well as arranging designated onshore projects into an asset package (only a single change compared to the project list in the original plan). 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 of the new bonds within 90 days. In addition, the controlling shareholder Zeng Jie Baby will deposit 10% of the company’s shares into an independent offshore escrow account as collateral.
Short Commentary
Overall, the new plan is a significant downgrade to the original plan, such as a decrease in equity distribution to creditors, longer tenor and lower coupon rate for the new bonds, declined capital injection from Zeng Jie Baby, Gortune’s complete exit from the restructuring plan, and the cancellation of the USD 100 million additional new money plan to fund a bond repurchase tender offer.
However, considering the fact that the Chinese real estate sector is still deteriorating, we think Fantasia’s restructuring plan is quite sincere somehow. At least bondholders can replace approximately 70% of their debts into new bonds after the completion of debt-to-conversion, which the haircut percentage is not bad compared to the plans from other property developers.
Meanwhile, we also think the tenor of the new bonds (2.5 years to 7 years) sounds reasonable. As some of the company’s projects have made it to the Ministry of Housing and Urban-Rural Development’s whitelist for project financing, it should bring significant impact to the company given its smaller scale and may accelerate the cash conversion cycle, gradually improving its debt-serving ability in the coming years.
Last but not least, the AHG and its advisor will charge a decent sum of fees (expected amount is around USD 17 million), and they will play the gatekeeper role for other creditors. If the restructuring plan is approved, Fantasia will report to AHG on all debt-related matters. The AHG can even discuss directly with the company and make decision on various terms. Nonetheless, under normal circumstances, all creditors in this restructuring plan should receive a fair and consistent consideration.
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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