Proactive response and disposal.Zhongfang Daily reporter Zeng Dongmei reported from Guangzhou
In the end, China South City could not escape the fate of defaulting on its dollar bonds.
On February 19, Shenzhen Special Zone Construction and Development Group (hereinafter referred to as "Special Zone C&D") issued an announcement, stating that after verification by the company, China South City Holdings *** hereinafter referred to as "South China City", 01668HK) Mandatory redemption monies due on 9 February 2024 on the October 2024 Notes and interest on the April 2024 Notes due on 12 February 2024 were not paid. "The company attaches great importance to the default of this overseas note of China South City and will continue to keep in touch with China South City. ”
Two months ago, on December 20, 2023, China South City reached an extension of a US dollar bond, but there are still 4 US dollar bonds due in 2024, with a total outstanding principal amount of about 11$100 million. On Chinese New Year's Eve, Feb. 9, China South City revealed that it was "facing very strong debt repayment pressure" and announced that it would not repay a mandatory redemption due on the same day and an interest due on February 12, which would lead to a default event on the relevant notes.
Previously, investors had high hopes for the state-owned SAR C&D, but the latter had always hoped that China South City would convert its debt through a market-oriented approach.
On February 20, a relevant person from the Special Zone C&D told a reporter from China Real Estate News that it was inconvenient to disclose information about the default in South China City, but the company was actively responding to and dealing with it.
China South City defaulted on its US dollar bonds
Market news showed that on February 9, China South City's US dollar bonds maturing in October 2024 needed to pay the principal amount5, about $10 million, but the bondholders did not receive the payment on the same day. In the evening of the same day, China South City published a default notice.
China South City said that due to changes in external factors, the company's sales in recent years have fallen short of expectations, and cash flow can only ensure the needs of daily operations, which has led to an increasingly tight liquidity and a very large debt repayment pressure. Although the company has taken various positive measures since 2022 and successfully rolled over its offshore US dollar bonds several times, its operating and financial position have not improved in a timely manner.
As a result, China South City does not expect to make any mandatory redemption proceeds for the October 2024 Notes due on February 9, 2024, which would result in an Event of Default on the October 2024 Notes. The Company also does not expect to pay an interest on the April 2024 Notes due on February 12, 2024, and failure to pay such interest by March 13, 2024 will result in an Event of Default on the April 2024 Notes.
The above events "may trigger an Event of Default under other debts which may result in our inability to meet our payment obligations under outstanding debts, which could have a material adverse effect on our business, operations and financial condition, including the possibility that it may result in bankruptcy or other forms of restructuring." ”
China South City said it is considering different options, including but not limited to consent solicitation, debt restructuring plan and exchange offer.
For the major shareholder, the SAR C&D, the debt crisis in South China City is a major event. In addition to confirming the fact of default of China South City in the announcement, the company also stressed that its own business conditions are normal, and "it is expected that this incident will not affect the payment of the company's outstanding bonds." ”
Market-oriented debt
Since its official entry into South China City in May 2022, C&D has been playing a conscientious role as a major shareholder. In the year of ownership, he contributed about 125.7 billion yuan to acquire 50% of the equity of China South City's First Asia Pacific Property, and spend 5 billion yuan to subscribe for about 69 percent of Xi'an South China City35% equity, started business cooperation with 7 projects under construction in China South City, and signed a "keepwell agreement" with Citigroup International, the trustee of the notes, to successfully obtain the majority of investors to agree to the extension of US dollar bonds for China South City.
In the 2022 annual report, the SAR C&D stated that in 2023, it will strengthen the post-investment management and coordinated development of South China City, focus on the "three arrows" of liquidity issues, actively promote the implementation of syndicated loans, give full play to the role of equity investment in South China City, and promote comprehensive cooperation with South China City projects in various places to ensure that the total debt and comprehensive debt ratio of South China City will only decrease and not increase. We will continue to deepen the business synergy with South China City in terms of Pinghu South China City's old renovation, park collaborative investment promotion, comprehensive disposal of construction waste, smart parking, and multi-functional smart poles, so as to achieve mutual benefit and win-win results for both parties.
In March 2023, under the promotion of the Special Zone C&D, the syndicated loan was settled, and China South City signed a 6 billion yuan working capital syndicated loan contract with 11 banks, including Bank of China, China Construction Bank, and Industrial and Commercial Bank of China, with a loan term of 3 years and an interest rate of 47%, and the proceeds will be used to repay the principal and interest of the company's existing loans. China South City said at the time that this was the largest single financing the company received, and it was expected to save about 200 million to 300 million yuan in annual interest costs by replacing high-interest loans, and the related operating performance was expected to be greatly improved.
Just when investors thought that South China City was about to be reborn, something changed. On December 4, 2023, the company announced that it had not paid the interest on the US dollar bonds due on November 20, 2023, and if it could not be paid within one month, it would lead to the occurrence of an event of default, thus initiating the second rollover of five US dollar bonds. But in the end, only one US dollar bond passed, laying the groundwork for this default.
According to industry insiders, the default of China South City may trigger foreign creditors to file lawsuits in court to challenge the validity of the "keepwell agreement" provided by the SAR C&D, so as to require the shareholders to bear corresponding responsibilities. However, the attitude of the Special Economic Zone C&D has always been very clear, that is, it hopes that South China City will solve its own debt problem through a market-oriented approach, that is, it will not cover for it.
Some investors said that the revenue scale of the Special Economic Zone C&D is not high, and the development also needs to borrow, and if the problems of South China City are not handled well, it may affect its own credit rating. According to the results announcement, in 2022, the SAR C&D recorded an operating income of about 5.4 billion yuan and a total profit of 745.6 billion yuan, with a growth rate of more than 100%, if the merger and acquisition income factor of South China City is excluded, the total profit for the whole year is 2900 million yuan.
A relevant person from the Special Zone C&D told a reporter from China Real Estate News that the 2022 annual report did not include the "keepwell agreement" provided to China South City as an influencing factor, and the company is currently evaluating the impact of the default event in China South City, and it is expected that the 2023 annual report will make relevant disclosures.
South China City has also launched a self-rescue plan, and since February, it has been hung out of Xi'an South China City about 30Announcement of the transfer of 6472% equity interest and 50% equity interest in First Asia Pacific Property. Regarding the progress of the equity transfer and the next debt repayment plan, a reporter from China Real Estate News contacted China South City, but did not receive a reply as of press time.