Developer China South City avoids US dollar bond default
CHINA South City Holdings, a property developer partially owned by the city of Shenzhen, avoided default on a US dollar bond interest payment after creditors agreed to extend the note’s maturity and lower its coupon.
Holders of the 9 per cent note due July 2024 – US$235 million of principal outstanding –agreed to push back its maturity date to August 2027 and halve the interest to 4.5 per cent, according to a filing to the Hong Kong Stock Exchange on Wednesday (Dec 20).
The outcome provides immediate relief as a grace period for the coupon payment, which was set to expire on Wednesday. But China South City’s wrangling with bondholders likely will drag on, as they failed to reach an agreement on four other dollar bonds that the company sought to negotiate at the same time.
Still, creditors’ agreement on the 9 per cent note adds to recent signs – including Country Garden Holdings’ early bond payoff last week – that China’s beleaguered property industry may be able to avoid more defaults long enough for a hoped-for rebound in home prices and demand in the new year.
China South City telegraphed the potential outcome of its last minute talks with creditors, when it said in a Monday filing that it did not have enough resources to pay for the interest. The company said it was asking creditors to vote to extend maturity and lower interest on all five dollar bonds – with a total outstanding principal amount of US$1.35 billion – in one inclusive agreement.
But creditors’ assent to delay the 9 per cent note is now a separate deal and a consent solicitation in relation to each of the other four notes has lapsed. It “is not conditional upon the consummation” striking agreements on the other four notes, China South City said in the Wednesday filing.
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To obtain the relief measures sought, China South City needed a certain amount of creditor votes – representing at least 75 per cent of the outstanding amount for each of five dollar bonds – for the plans. As at the voting deadline, holders of 69.87 per cent of the aggregate outstanding principal amount across all five series of notes voted in favour of the consent solicitation.
China South City still has not acquired enough votes from the bondholders in regard to its four other notes, according to a company filing.
The company – partially owned by Shenzhen SEZ Construction and Development Group, a unit of the southern city’s local state asset regulator – was among the first in the country’s property sector to receive a state bailout.
Country Garden Holdings, one of China’s largest developers, paid off a bond ahead of schedule last week to prevent its own debt crisis from worsening. A senior Chinese housing official also pledged to help developers avoid a cascade of debt defaults, among the strongest commitments yet to cushion an escalating liquidity crisis. BLOOMBERG
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