China Debt Restructurings Come to a Head for $150 Billion Market

(Bloomberg) — Two years after China’s developers began their descent into a debt crisis that ravaged the sector and forced record defaults in the nation’s $150 billion junk dollar debt market, creditors are starting to get a taste of the full consequences.

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Logan Group Co. — a builder of homes for first-time buyers which operates mainly in the Greater Bay area of Guangdong, Macau and Hong Kong — showed its latest restructuring proposal to some noteholders this week, people familiar with the matter said. It adds to a flurry of activity in a pivotal month for the country’s property debt crunch.

China Evergrande Group, the poster child for the industry’s woes, has said it wanted to get support from bondholders for its own debt-restructuring plan by early March and faces a March 20 court hearing in Hong Kong on a winding-up petition. Two Logan units are scheduled to have hearings next week regarding such petitions against them.

Zhenro Properties Group Ltd. aims to issue preliminary proposal for offshore debt solutions by the end of the month. And fellow defaulted builder Sunac China Holdings Ltd. is preparing a restructuring support agreement for an ad-hoc group of major offshore debtholders to sign after they voiced support for the firm’s plan, people familiar with the matter said earlier this week.

A government crackdown on property-related leverage growth caused a cash crunch that squeezed builders’ liquidity, ultimately resulting in more than a year of declining new-home sales and prices. Real estate firms defaulted on a record amount of dollar bonds last year. Steps since November to support developers set off big rallies in developers’ stocks and notes, but the euphoria has cooled and the sector’s equities entered a bear market Thursday.

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Logan, China’s 36th-largest builder by contracted sales last year, suspended dollar-bond payments in August. It disclosed during a January meeting with some creditors that it aimed to finalize changes to an offshore-debt restructuring proposal by mid-February, Bloomberg News previously reported. That goal was subsequently extended.

Logan’s latest restructuring proposals are preliminary and subject to change based on creditor feedback, according to the people familiar with the matter. The company didn’t immediately respond to an emailed request for comment.

“Many issuers are taking creditor feedback quite seriously,” Sophia Xia, co-head of China restructuring at financial adviser Houlihan Lokey Inc., said during a January conference hosted by S&P Global Ratings. “Meanwhile, it seems quite obvious that China’s supports are being mostly offered to the ‘quality developers.’ This provides incentives for developers to get serious about cleaning up their obligations.”

An offshore-debt restructuring plan for Logan first emerged in September that aimed to extend the average term of $6 billion in borrowings to more than five years. Logan’s offshore bonds have maturities out to 2028, according to Bloomberg-compiled data.

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