20220923-招银国际-CHFOTN__Thoughts_on_the_debt_restructuring_plan_4页_510kb

CMBI Credit Commentary Summary

Core Content

This document provides an analysis of the debt restructuring plan for CFLD (China Finance & Land Development), focusing on the implications for the three bonds (Bond 1, Bond 2, and Bond 3) and the valuation of the company's assets and equities. The summary outlines the restructuring terms, approval processes, and fair value estimates based on different discount rates.

Main Points of the Debt Restructuring Plan

• Debt Restructuring Overview:
  CFLD is restructuring its eligible redemption debts of RMB134bn. The plan involves:

  • Swapping up to 70% of the debt into trust units/equities.
  • Extending the maturity of the eligible redemption debts for 8 years.
  • Settling the remaining 30% with proceeds from asset disposals.

• Asset Disposal and Redemption:

  • An asset portfolio with a net asset value (NAV) of RMB50mn is earmarked for disposal.
  • On a best effort basis, CFLD will redeem 64.2% of Bond 1 in cash by 31 Dec'23, which includes a 1% cash prepayment fee.
  • The cash prepayment fee is considered a principal repayment and is due on 13 Oct'22, with a longstop date of 31 Mar'23.

• Equity Valuation and Bond Selection:

  • The fair value of the equities is estimated at RMB50bn by 2026, but there is no consensus on whether this valuation is fair.
  • Holders of Bond 2 will have a maximum of 50% interest in the 3 companies, thus the attributable value is capped at RMB25bn.
  • There is no cap on the number of holders choosing Bond 2, which may affect its valuation.
  • Bond 3 is expected to have more uncertainties due to the lack of clear credit enhancements.

• Approval Thresholds:

  • The restructuring can be approved either via consent or scheme.
  • Consent: Requires a quorum of at least 2/3 in principal amount and 2/3 of the quorum voting in favor for each individual USD bond.
  • Scheme: Requires at least 75% in principal amount and 50% headcount in the creditors' meeting for the 11 USD bonds.

• Ad-hoc Group's Veto Claim:

  • The ad-hoc group claims to hold over 25% of the aggregate USD bonds and has a veto over the restructuring plan.
  • They have expressed opposition and are preparing for winding-up petitions in Hong Kong.

Fair Value Estimates

The fair value of CHFOTNs (CFLD's offshore bonds) is estimated to be 16-51 per 100, based on different discount rates applied to the asset and equity values provided by CFLD. The estimates are as follows:

• Note: The discount rates are applied to the asset and equity values provided by CFLD, and not all creditors may choose Bond 2, which affects the overall valuation.

Key Information

• The restructuring plan is subject to investor approval and may take the form of a consent or scheme.
• The ad-hoc group has significant influence over the restructuring process and may challenge it.
• Bond 3 is expected to have more uncertainty due to the lack of clear credit enhancements.
• The fair value estimates are based on assumptions about asset disposal and equity monetization, with significant discounts applied.
• The document includes important disclosures regarding the risks of investing, the lack of individualized advice, and the legal responsibilities of CMBIGM.

Appendix Summary

• Appendix 1 provides a detailed summary of the debt restructuring plan, including the swap and extension terms, as well as the asset portfolio earmarked for disposal.
• The restructuring is managed by CMB International Global Markets Limited (CMBGM), a subsidiary of China Merchants Bank.

Disclaimer

• The report is intended for institutional investors and may not be distributed to others without prior consent.
• CMBIGM provides information and analysis on an "AS IS" basis and does not guarantee accuracy or completeness.
• The report may include conflicts of interest due to CMBIGM's potential involvement in investment banking activities related to the companies mentioned.