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- Yuzhou released the proposed restructuring plan in August last year (please refer to “Bond Update: Yuzhou’s Proposed Restructuring Plan”). Recently, the company announced that it received support from the Ad Hoc Group(“AHG”), which collectively represents approximately 30% of the aggregated principal amount), and made some amendments to the restructuring support agreement (RSA).
- In the previous proposal, Class B creditors included holders of perpetual bonds only, whereas the updated version includes four privately placed notes as well as a USD 100-million bond due in 2021, which allayed our concern about the fairness of the proposal when the company reached private agreements with relevant creditors.
- The company’s sponsors will give strong support to the restructuring plan, and Yuzhou shall raise a maximum of USD 14.4 million by way of a rights issue, of which the sponsors shall subscribe for not less than USD 8.5 million.
- Based on the timetable of RSA, the voting deadline is on 21 March 2024, and if the scheme is passed, bondholders who vote in favour will receive a base consent fee equivalent to 0.1% of the principal amount. If bondholders vote in favour earlier than 7 March 2024, they will receive an early-bird consent fee equal to 0.2% of the principal amount.
- Yuzhou still offers three options to creditors, namely, 1) New Notes with a short-term maturity (“STN”) plus Cash Payment, 2) New Notes with medium-term maturities (“MTNs”) + new shares to be issued by the Company + LTN, 3) New Notes with long-term maturity (“LTN”). Creditors are free to choose one or more of the above options for part or all of the claim amount. The following are details of the three options:
Option 1: New Notes with a short-term maturity (“STN”) plus Cash Payment
Class A creditors who choose Option 1 will convert every USD 100 of principals of existing notes into USD 30 of new notes (Table 1), translating into a 70% principal haircut. In addition, Yuzhou will make cash payments of USD 23.5 million (around 1.85% of the maximum accepted amount for that group) to Class A creditors and USD 1.24 million (around 0.62% of the maximum accepted amount for that group) to Class B creditors. Certainly, the STN will be issued at a size subject to the deduction of pro-rata cash payment. Moreover, accrued interest will be waived.
Table 1: STN
|
Conversion
Ratio |
Class A: 30% Class B: 10% |
|
Principal Amount |
Class A: Up to USD 356,500,000 Class B: Up to USD 18,760,000 |
|
Tenor |
3 Years |
|
Coupon Rate |
6% |
|
Coupon Payment |
Semi-annually in arrears, all shall be paid in cash |
|
Amortization |
18 months after issue date: 5.33% 24 months after issue date: 10.66% 30 months after issue date: 15.99% at maturity: Remaining outstanding amount |
|
Sources: Company’s Announcements, iFAST compilations Data as of 20 January 2024 |
|
Option 2: MTNs+ New Shares + LTN
Class A creditors who choose Option 2 will convert every USD 100 principal of existing notes into USD 72 of new MTNs and USD 28 of new shares issued by the company. Class B creditors will convert every USD 100 principal of existing notes into USD 36 of new MTNs and USD 64 of new shares. Accrued and unpaid interest will be converted into LTN at a conversion ratio of 2:1, implying that every dollar of accrued and unpaid interest shall be converted into 0.5 dollars of LTN. Additional information is shown below:
Table 2: MTN
|
Principal Amount |
Tranche A: USD 378 million Tranche B: USD 655 million Tranche C: USD 870 million Tranche D: MTN face value less the aggregate of Tranches A, B, and C |
|
Tenor |
Tranche A: 4 Years Tranche B: 5 Years Tranche C: 6 Years Tranche D: 7 years |
|
Coupon Rate |
Tranche A: 4% Tranche B: 4.5% Tranche C: 5% Tranche D: 5.5% |
|
Coupon Payment |
Semi-annually in arrears Interest to be paid in cash or in kind at the election of the company in the first 3 years All interest in cash from year 4 after |
|
Sources: Company’s Announcements, iFAST compilations Data as of 20 January 2024 |
|
Option 3: LTN
The conversion ratio for creditors who choose Option 3 is 1:1, meaning every USD 100 of the principal of existing notes will be converted into USD 100 of new LTN (Table 3).
Table 3: LTN
|
Conversion Ratio |
100% |
|
Principal Amount |
No cap, the issue amount is dependent on creditors' claims in Option 3 and accrued interest claims of Option 2 |
|
Tenor |
10 Years |
|
Coupon Rate |
1% |
|
Coupon Payment |
Semi-annually in arrears Interest to be paid in cash or in kind at the election of the Company |
|
Sources: Company’s Announcements, iFAST compilations Data as of 20 January 2024 |
|
Credit Enhancement
Yuzhou provided various credit enhancement measures for the three options, including cash sweep and equity pledge (Table 4). Among them, Option 1 is additionally secured by a pledge of 10% of the company's shares held by the sponsors after the restructuring. In summary, Option 1 enjoys the highest level of protection, while Option 2 is superior to Option 3.
Table 4: Credit Enhancement
|
STN |
MTN |
LTN |
|
|
Cash Sweep |
1st priority over cash sweep(1)on 70% of (1) Net Cash Proceeds from Specified Asset Sale and (2) WFOE Project Companies Proceeds |
Similar to STN, but with 2nd priority |
N.A |
|
Guarantee and Security |
1. Security 10% of the issued ordinary shares of the company held by the Sponsors 2. 1ST ranking security over the Credit Enhancement Package and allocation account 3. Corporate guarantees from 42 Subsidiary Guarantors under the existing public notes |
1. 2nd ranking security over the Credit Enhancement Package and allocation account 2. Corporate guarantees from 42 Subsidiary Guarantors under the existing public notes |
Corporate
guarantees from 42 Subsidiary Guarantors under the existing public notes |
|
Sources: Company’s Announcements, iFAST compilations Data as of 20 January 2024 |
|||
Short Commentary
Compared to the proposed restructuring plan in August last year, the updated version has not changed much, albeit the structure is relatively more complicated. Despite the fact that Option 1 involves a significant principal haircut, considering an immediate cash payment of 1.8% (for Class A creditors), coupled with amortization of STN and higher credit enhancement priority, we believe the sincerity of Option 1 is still pretty good enough for Class A creditors.
Given the limited issue size of STN in Option 1, the likelihood of oversubscription is very high, and creditors might be allocated to Option 2 as a result. Option 2 involves the debt-to-equity swap, which represents a potential loss of nearly 98% based on the previous conversion price of HKD 3.76 per share and the current trading price of HKD 0.09 per share. However, if the MTN of Option 2 could be repaid timely and creditors believe there is a significant rebounding of share price in the future, Option 2 is also acceptable.
As a default option, the overall quality of Option 3 is apparently lower. The purpose of this option should be alleviating the debt burden by transferring some creditors that never make any instructions away from the main plan.
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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