14 US dollar bonds were extended, and Yuzhou temporarily saved himself successfully

(Wen/Xie Hongjuan Editor/Yo-Yo Ma) Unable to take advantage of the usual financing channels, Yuzhou plans to start exchanging offers for two senior notes due 2022, which are now supported by the vast majority of exchange note holders.

On January 20, Yuzhou Group announced on the Hong Kong Stock Exchange that at the expiration of the exchange period, us$477 million of US dollar notes had been validly exchanged under the exchange offer, accounting for 82.0% of the total principal amount of US$580 million of the exchange notes, and a high proportion had passed the US dollar bond rollover agreement.

Yuzhou Group said that the success of this debt management has enabled the company to effectively extend the maturity period of a considerable part of the offshore debt and avoid the early maturity and court judgment default events related to the payment of the exchange notes under the consent notes.

Overall real estate sales were sluggish

Founded in 1994, Yuzhou Group launched the national expansion strategy in 2004, and has formed six major urban agglomerations in the Yangtze River Delta, Bohai Rim, Guangdong-Hong Kong-Macao Greater Bay Area central China, Haixi and Southwest China, and has entered 39 cities including Beijing, Shanghai, Hong Kong, Xiamen, Fuzhou, Suzhou, Hefei, Shenzhen, Chongqing and Chengdu.

As of June 30, 2021, Yuzhou Group's total land reserve was 22 million square meters, with more than 90% of first- and second-tier and quasi-second-tier cities, with an average floor price of 6854 yuan / square meter. Due to the good regional structure of saleable value, in the first half of 2021, Yuzhou Group completed contracted sales of 52.71 billion yuan, up 23% over the same period in 2020, and the contracted sales area was 2.609 million square meters, up 9% year-on-year.

However, since the middle of 2021, the sales of residential properties in China have slowed down significantly, and the sales prices of residential units have also dropped sharply, and Yuzhou Group, which was full of confidence in completing its annual performance, has missed its annual target. In the whole year of 2021, Yuzhou Group achieved a cumulative sales amount of 105.019 billion yuan, a slight increase over the contract sales in 2020, but only 95.47% of the annual target of 110 billion yuan.

For the default annual target, Yuzhou Group believes that it is related to the market environment. "Compared to the same period in 2020, the Company recorded a significant decrease of 15.5% in cumulative gross floor area sold, reflecting the deterioration of the real estate market. The market downturn also seriously hampers the Company from converting existing goods or disposing of any significant investment property to generate sufficient cash, timely repayment of debts and maintenance of operations. ”

In fact, due to the large environmental impact, the overall sales target completion rate of housing enterprises is not ideal. According to the data of China Housing Network, the overall completion rate of the sales target of typical housing enterprises in 2021 is more than 90%, but this indicator is significantly lower than the same period of 104.02% in the past three years.

In addition, according to its incomplete statistical calculations, the average sales target completion rate of typical housing enterprises in 2021 is 91.18%, which is lower than 95.47% of Yuzhou Group.

At the same time, real estate developers began to encounter difficulties in obtaining external financing from domestic and foreign banks and overseas capital markets. Under liquidity pressure, Yuzhou Group transferred all the issued share capital of Yuzhou Property Services, which is mainly based on residential service management, to China Resources Vientiane Life, and the 1.06 billion yuan recovered from the sale of the property subsidiary was used to repay its new debt redemption after the exchange offer of US dollar bonds.

However, in the current market conditions, the implementation of these measures is quite difficult and time-consuming. Yuzhou Group admitted, "Although the Company is committed to fulfilling its repayment obligations when due, the Company may continue to be under pressure to achieve sufficient cash flows to fully meet its obligations due in the future." ”

Affected by the above factors, Yuzhou Group decided to carry out debt rollover, reduce the pressure on the company's cash flow and manage the company's default risk.

Adoption of a rollover agreement on U.S. dollar bonds

In fact, Yuzhou Group is one of the few companies in the inner house that does not have commercial tickets, internal wealth management or other wealth products.

According to a person close to Yuzhou Group, in December 2021, Yuzhou Group had transferred a full amount of the principal and interest of its related supply chain ABS to the designated agent bank account for bond settlement and redemption one week in advance. The principal amount of the supply chain ABS is RMB590 million, with a maturity date of December 15, 2021, which is the only existing supply chain ABS in Yuzhou.

From the current point of view, the main debt pressure of Yuzhou Group comes from overseas DOLLAR debt. In order to reduce the risk of cross-default of overseas debt, on the evening of January 12, Yuzhou Group announced that it would begin to exchange offers for 6.00% senior notes due 2022 and 8.625% senior notes due 2022, with outstanding amounts of US$340 million and US$242 million respectively. The Exchange Offer commences on 12 January 2022 and expires on 19 January 2022 (4pm London time).

In return, for every US$1,000 principal amount, Yuzhou Group repaid the principal amount in cash of US$50, the cash incentive amount of US$10 and the total principal amount of the new notes of US$950. Upon completion of the exchange, the new notes will be accrued at an annual rate of 7.8125% and mature on January 21, 2023.

At the same time, Yuzhou Group sought consent to an additional 12 note exchange offers, with a consent fee of US$2.50 per US$1,000 principal amount, involving a cumulative outstanding principal amount of approximately US$4.916 billion. Among them, from 2022 to 2027, Yuzhou Group plans to exchange usd-due US dollar debt of the offer of US$215 million, US$1.329 billion, US$997 million, US$886 million, US$932 million and US$557 million, respectively.

On January 20, Yuzhou Group issued an announcement saying, "At present, it has successfully obtained the support of the vast majority of holders of exchange notes and all the necessary consents required to obtain consent for the notes." "It is planned to sign a supplementary bond deed on January 21, 2022, bringing into effect the proposed amendments and exemptions.

In other words, the remaining 12 DOLLAR bills exchange offer is expected to be approved and extended.

Regarding the progress of the remaining exchange notes, Yuzhou Group said that a number of holders of exchange notes expressed their willingness to participate in the exchange to the company, but due to the difficulties caused by the short exchange period, they failed to submit instructions in a timely manner. In order to meet the needs of these holders, the Company intends to make another exchange offer for the remaining exchange notes on around January 26, 2022, on the substantially identical terms of the exchange offer.

"The swift response and active participation of the vast majority of holders is a testament to the confidence of the holders in the company." Yuzhou Group said that the successful implementation of the exchange offer and the consent solicitation will enable the company to extend the debt term and enhance its debt management capabilities. The Company intends to actively negotiate with other creditors to reach a consensus within a reasonable time and resolve the Company's liquidity issues in an amicable manner. At the same time, the Company will continue to prioritize stable operations to maintain contracted sales and cash flow.

Yan Yuejin, a well-known real estate analyst, said that similar debt disposal methods have been supported by note holders, which also shows that the contradictions in debt have been resolved. At the very least, it shows that companies need to be flexible in dealing with such debt problems, forming a common denominator of interests, and thus promoting better solutions to such problems.

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