Exclusive | Bondholders urge Chinese defaulter Sino-Ocean to rejig US$6 billion debt plan after slamming big haircuts, weak recovery rates

An ad hoc group of bondholders, which owns more than 25 per cent of the group’s defaulted dollar-denominated bonds, is seeking a fairer solution from the Beijing-based company. It rejected the proposed reorganisation plan, citing deep haircuts and poor recovery rates imposed on many classes of creditors.

Sino-Ocean’s repayment plan, unveiled on July 18, will have a 63 per cent average haircut on creditors, according to an internal analysis produced by the ad hoc group. That ranks among the highest in restructuring involving defaulted Chinese property developers, a person involved in the matter said.

Some classes of creditors could face a 70 to 88 per cent loss, while bank creditors could escape with a 34 per cent setback, according to the analysis based on a 35 per cent discount rate. The bondholder group is advised by Linklaters and Haitong International.

Sino-Ocean had US$1.92 billion of syndicated and bilateral loans, as well as seven tranches of dollar-denominated bonds totalling US$3.72 billion, when it defaulted in September last year. The total claims have snowballed to about US$6 billion including accrued interest.

China’s property market has struggled to recover from a multi-year crisis, first triggered by Beijing’s “three red queues” policy and worsened by a slump in demand during the Covid-19 pandemic.

The developer, which counts state-backed China Life Insurance and Dajia Insurance among its top shareholders, offered to repay creditors out by issuing US$2.2 billion of new long-term bonds and a combination of new mandatory convertible bonds and perpetual securities.

The allocation of new debt and post-restructuring equities would allow bondholders to recover about 5.4 cents per dollar, while bank lenders could regain as much as 14 cents per dollar, according to the recovery analysis by the ad hoc group.

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Bondholders are aggrieved by the poor recovery rates, given their position as the largest group of creditors, according to people involved in the matter.

The ad hoc group of bondholders said Sino-Oceans’ existing repayment plan failed to extract any financial contribution from China Life Insurance, while the proportion of assets allocated to offshore creditors was insufficient.

The assets include its signature projects in overseas markets, a mansion in Hong Kong, high-end apartments in Singapore and Indonesia, and other offshore investment projects, according to a presentation seen by the Post.

Sino-Ocean is required to provide evidence to a local court in Hong Kong on August 21 to oppose the petition, after some creditors last month took action to demand immediate debt repayment. The winding-up hearing is scheduled to take place on September 11.

The developer will need to overcome its cash crunch and avoid the same fate that sent its peers to corporate graveyards. In recent cases, the High Court in Hong Kong has ordered peers like China Evergrande, Jiayuan International and Dexin to fold, while giving extra time to the likes of Country Garden and Kaisa Group to fix their debt woes.