Chinese developers Logan and KWG use Hong Kong project to refinance US$1 billion loan

Two cash-strapped mainland Chinese developers have secured a private loan to refinance a US$1 billion facility using a luxury property in Hong Kong as collateral, according to people familiar with the matter.

Logan Group and KWG Group Holdings signed the US$1.05 billion refinancing deal with a group of investors over the weekend, according to sources who requested anonymity. The private loan, which has a tenor of 30 months and two six-month extension options, was arranged by JPMorgan Chase ahead of the loan’s maturity on August 25, the sources added.

Dignari Capital Partners (HK), Davidson Kempner Capital Management, RRJ Capital, Pacific Investment Management and Deutsche Bank contributed to the lending facility backed by The Corniche joint venture property project, according to the sources.

“This now looks like a bridging loan since the interest rate is 13 per cent,” said Will Chu, senior research analyst for Hong Kong and China property at CGS International Securities. Lenders are willing to refinance the loan as the developers have taken action to lower the average selling price and sell some units, he added.

The developers declined to comment on the breakdown of the loan, but Bloomberg reported Davidson Kempner Capital and Dignari Capital each provided US$250 million. RRJ Capital and Deutsche Bank each extended US$200 million, while Pacific Investment provided US$150 million.

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The size of the new borrowing facility was smaller than the original HK$10.2 billion (US$1.3 billion) after both developers paid down some of the debt, according to one of the sources.

The original loan was extended by a group of banks including HSBC, Standard Chartered and Industrial and Commercial Bank of China (Asia) to finance the construction of The Corniche in 2021. The facility has around HK$8.5 billion in outstanding principal and interest, the source said.

The Corniche is a luxury development in Ap Lei Chau. Sales of units in the project started in early 2023, with only 31 of the 295 units sold so far, according to the official government website for first-hand residential property.

The Corniche has been favoured by cash-rich mainland Chinese buyers after the Hong Kong government removed all property cooling measures in February, according to property agents.

Logan, which is undergoing a restructuring, said in January that it was counting on revenue from The Corniche to help repay its creditors. However, a slump in Hong Kong’s property market has pushed down the prices of units in the project by as much as 40 per cent. The Corniche loan is not included in the restructuring.

Logan has more than 150 projects in progress across China. As of December 31, the outstanding principal of Logan’s US dollar senior notes and Hong Kong dollar-denominated equity-linked securities amounted to US$3.6 billion, and the aggregate unpaid relevant interest amounted to US$368 million, according to its 2023 annual report.

Defaulting on the loan would mean creditors could seize the project, which in turn would put the company’s restructuring plan in jeopardy.

KWG Group had a total of 163 projects in 43 mainland cities and Hong Kong as of December 2023. The company said that it was working with creditors on debt restructuring issues and seeking a comprehensive solution to the offshore debts to ensure the sustainable operation of the company.

“We will endeavour to complete the restructuring plan as soon as possible,” KWG said in its 2023 annual report.