(Jan 23): Some China Vanke Co dollar bondholders are urging the distressed builder to consider options such as debt-to-equity swaps, as they seek to avoid getting sidelined in what would be one of the country’s largest-ever restructurings.
Debt advisory firm PJT Partners, on behalf of creditors holding 15% of Vanke’s dollar bonds, sent a letter with the proposals to the company on Thursday, according to people familiar with the matter. That marks one of the first formal requests from any investors in Vanke’s US$1.3 billion of outstanding dollar notes, though more holders would need to get on board to increase their clout in any negotiations.
The creditors also suggested exchanging existing bonds at a discount to their face value for new notes backed by offshore assets, the people said. The group holds about US$200 million of Vanke’s two dollar bonds, due in 2027 and 2029.
The outreach comes as Vanke, one of the last major Chinese developers to so far avoid default, has been working to amass support to delay payments on some of its local bonds. It recently won the backing of creditors for one such plan, after sweetening an initial proposal with 40% upfront cash payments, and holders of two other notes are voting on a similar offer.
Despite that, authorities recently asked the company to prepare a debt restructuring plan, as it strains under nearly US$50 billion in interest-bearing liabilities.
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Vanke’s dollar notes are trading at around 25 cents on the dollar, while the majority of its yuan-denominated bonds have climbed to about 40 yuan, fuelled by hopes the developer may offer the same upfront cash payments on all outstanding onshore notes.
In the letter, bondholders urged the company not to use offshore assets as credit enhancements to the exclusion of dollar note investors, the people said.
PJT declined to comment, while Vanke didn’t immediately offer a comment.
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PJT told creditors in a call in January that they could consider calling a default on Vanke’s offshore bonds, based on certain “cross-acceleration” clauses in the company’s dollar bond offering documents.
Under these clauses, if other debts amounting to more than US$50 million aren’t paid on time or “within any originally applicable grace period”, bondholders can demand full payment of all the company’s notes. That’s as long as creditors representing at least 25% of the outstanding amount of any dollar bond agree.
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