Country Garden bank creditors warn of deal breaker on debt plan
[HONG KONG] Chinese developer Country Garden Holdings' efforts to win backing for a US$14.1 billion offshore restructuring are running into resistance as key bank creditors say failure to accept some of their demands would be a 'deal breaker.'
The company, once China's largest property developer by contracted sales, got a few months' reprieve from its liquidation petition hearing on Monday (May 26), as High Court Judge Linda Chan decided to adjourn the case to Aug 11.
At the same time, a key group of banks, known as the co-ordination committee, injected some urgency to the process, saying that the company hasn't yet agreed to its proposal on details of a US$178 million deal on the return of seized collateral. The group's lawyer said that if there is no agreement on the issue, the restructuring 'is bound to fail.'
The co-ordination committee is crucial to Country Garden's restructuring because it has the power to block any potential deal. The company needs support from three-quarters of debt holders in two individual groups – bank lenders and bondholders. It has said that it has backing from holders of 70 per cent of bonds, but even if it gets more from that class, it still needs bank creditors to get on board to pass the plan through a 'scheme of arrangement' procedure.
The committee's members hold or control about 48 per cent of three syndicated loans with total principal of US$3.6 billion. Unsettled issues on the compensation deal include details on credit enhancements, payment schedule and seniority, etc.
Chan said that her decision to adjourn the case took into consideration the amount of the debt and number of creditors involved. She said she would like to see some 'useful and good progress' in the next hearing.
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The company, with the agreement of bondholders, had asked for a six-month extension, while the lawyer for the bank group sought a three-week delay.
Country Garden has been in talks with creditors since it defaulted on its US dollar debt about 19 months ago. The issue of compensation for banks releasing collateral backing certain loans has been in focus since early in the process.
Under the company's scheme of arrangement, there are two classes of creditors, divided into banks and bondholders, according a filing. 'Class 1' comprises banks, including the co-ordination committee. 'Class 2' includes existing US dollar bondholders, Hong Kong US dollar convertible bondholders and Ever Credit, which filed the wind-up petitioner against the company in February last year and holds a bilateral loan.
The company's restructuring is one of the biggest by a Chinese developer since the beginning of the real estate crisis.
Country Garden has said that it plans to submit documents to the court in mid-August to hold a convening hearing, which would allow a creditor vote on its debt plan. It has previously said that it aims to complete the restructuring in December. BLOOMBERG
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