China Aoyuan, a real estate company, has announced its latest agreement with a creditor group to restructure its overseas debt. The agreement includes debt-to-equity swaps and the issuance of new financing tools to replace the original bonds. Aoyuan currently has approximately RMB 42.818 billion in overseas interest-bearing liabilities and RMB 66.232 billion in domestic interest-bearing liabilities. The company needs to obtain a 75% approval rate from creditors for the plan to be successful.
The restructuring plan includes the issuance of new bonds, totaling $2.3 billion until 2031, 1.4 billion ordinary shares, interest-free mandatory convertible bonds, and perpetual bonds. Aoyuan plans to issue the new bonds through its subsidiary, Add Hero Holdings Limited, and has also agreed to transfer newly issued shares and existing shares held by the current controller to creditors. The issuance of mandatory convertible bonds and perpetual bonds is expected to significantly increase Aoyuan’s book value and decrease its net debt ratio.
The approval of the restructuring plan is crucial for Aoyuan, as it currently has a net debt ratio of 80.7%. However, the company is still far from reaching the required approval rate of 75% from creditors. Aoyuan predicts that its development projects will generate approximately RMB 64.3 billion in free cash flow and plans to consider selling some domestic and overseas assets in the next ten years, generating an additional RMB 8 billion to 13.8 billion.
While Aoyuan’s debt restructuring plan has been announced, trading of its shares remains suspended. The company still needs to disclose its remaining annual reports for 2021, 2022 mid-term, and 2022. Aoyuan Health, a company with a financial dispute with Aoyuan, has also submitted an application for resumption of trading to the Hong Kong Stock Exchange. The reissue of annual reports is a significant step towards resumption of trading and is also a condition for Nanyue Fund and Singbridge International to acquire 29.9% of Aoyuan Health. Aoyuan is also in the process of selling 29.9% of Aoyuan Health to reduce its debt level.
Aoyuan’s restructuring and resumption of trading are important milestones for the company’s recovery. The success of the restructuring plan and the resumption of trading will greatly impact the future of Aoyuan and its ability to overcome its financial distress.