Three Chinese developers Jiangsu Zhongnan, Datang Group, and Zhongliang Holdings are on the brink of defaults. The firms have been working to redeem the situation through both exchange offers and consent solicitations. These two approaches are for the companies to extend maturities. However, the practice of these approaches depend on the government law. Under the English law, it allows issuers to amend terms like maturity along with the majority consent.
Meanwhile, it is quite different under the U.S. consent. In the U.S. it requires full consent with a few exceptions. It means that the exchange offers in the U.S. are more suitable. Guangzhou R&F Properties did a consent solicitation before to extend its 5.75% 2022 notes for six months. This was under English law. Meanwhile Zhongliang and Datang’s old bonds were under U.S. law. In this kind of scenario, it is no wonder that the developers would remain on the brink of defaults afterwards.
An investor noted that the small amount of the leftover would not be paid. The investors argued that the Zhongliang’s bondholders were not aware of the first exchange offer. However, after better conversation from the company, the second offer is said to be good Thus, it would scoop up most of the bonds that remain. The expiry of the new offer in this case was June 10, but there is no result announced yet.
The investor gives the additional view that bondholders who disagree with Zhongnan offer are very anxious right now. This is because the company could have allocated the exchange offer to reserve cash for onshore investor payment first. Although defaults are unavoidable, it does not mean that exchange offers are useless. Borrowers keep hoping that the remaining small number of investors will not push court resolution for the three companies.