After the extension of domestic private debt This time Aoyuan chose to "lie flat" with foreign maturity of dollar bonds

The warming atmosphere in the industry has not radiated to every housing enterprise.

Aoyuan is an exception. On the evening of January 19, the announcement of the recent operating conditions of China Aoyuan ignited the sensitive emotions of many investors.

China Aoyuan announced that it will not pay the remaining principal and final interest on the US dollar notes that will be due in total gold of US$188 million on January 20, 2022 and US$500 million due on January 23, 2022, and will not pay the latest interest under the US$200 million notes due In June 2023 and US$200 million due June 2024 after the expiration of the 30-day grace period.

Further, Aoyuan said that the Group intends to adopt the same principle with respect to the Group's other offshore financial liabilities; all other of its offshore financial liabilities will have or have default events.

This is almost equivalent to declaring the overall default of foreign debt.

A crisis emerges

From the extension of domestic private debt to the direct restructuring of overseas debt, this Guangdong real estate company has finally gone to lie flat.

Looking back, it was a domino-like collapse.

Since the second half of last year, Evergrande has opened this industry liquidity crisis. Subsequently, housing enterprises such as Fantasia and Sunshine City began to face the problem of debt payment, and the downgrading of a large number of real estate companies by rating agencies further catalyzed the crisis.

In October 2021, S&P downgraded Aoyuan's credit rating from "B+" to "B", believing that its liquidity may further tighten in the next 12 months; Moody's also downgraded Aoyuan's rating to B1; in November, Fitch, Moody's and S&P all downgraded Aoyuan's long-term issuer credit rating from "B" to "CCC", fearing that it would not be able to use its existing cash balance to repay its debts, and the risk of non-repayment was significantly increasing.

Aoyuan announced on 2 December 2021 that its usable principal amount of US$651.2 million for borrowers or guarantors was required to be repaid as a result of the downgrade and that Aoyuan "did not make payments or enter into agreements with such creditors on alternative payment arrangements".

Under the pressure of the run, Aoyuan also has three domestic private debt that are facing maturity pressure.

As a result, Aoyuan experienced a "30 days of crisis" in October and November last year, racing against the clock and multi-party maneuvering for the three private debt that were about to be repaid.

Viewpoint New Media understands that the three domestic private bonds are Shenzhen Qianhai Rongtong Commercial Factoring Co., Ltd. 2021 Phase I Aoyuan Group Supply Chain Accounts Payable Directional Asset-Backed Notes, Ping An-Aoying Supply Chain Finance Phase 1 No. 1 Asset-Backed Special Plan, and Zhongshan Securities-Aochuang Phase II Asset-Backed Special Plan, with an outstanding principal balance of 1.516 billion yuan.

Two of them expired in December 2021 and the other opened for exercise resale in November.

To this end, Guo Ziwen, chairman of the board of directors of Aoyuan, led the establishment of an internal emergency response team to run between major financial institutions. According to the "Aoyuan Extension Plan" circulated by investors, Aoyuan will extend the above three private equity products for an overall period of one year, during which the expected annualized income will remain unchanged; in terms of redemption, Aoyuan will be paid in three installments, the time node is 10% on the original maturity date, 10% after the extension is 30 days, and the remaining 80% will be due for redemption.

In the end, with the extension of the third domestic private debt that was about to mature on November 29, Aoyuan finally settled the domestic debt.

But overseas investors are still in a state of agitation.

It is understood that during the above-mentioned critical period of the extension of domestic private bonds, in order to avoid affecting the outcome of the negotiations, Aoyuan and the US dollar bond investors discussed the extension of the signing of formal legal documents for the extension of the US dollar bond.

Therefore, when the first domestic private debt rollover was announced on November 22, it was not only Aoyuan but also investors in US dollar bonds, because it meant that Aoyuan had spare energy to deal with the negotiations on US dollar bonds.

However, the storm suddenly changed, first there was news about the default of China Aoyuan's 66 million yuan trust loan in the afternoon, and the announcement disclosed at the same time that night also showed that China Aoyuan hired Zhong Gang Capital Co., Ltd. as financial adviser and Nianlida Law Firm as legal counsel to assess the group's capital structure, financial situation and debt and liquidity situation, and to conduct transparent dialogue with creditors on matters of common interest.

This move caused opposition from Aoyuan overseas private debt investors led by mainstream foreign-funded institutions, which in their view represents that Aoyuan is ready for foreign debt negotiations or even defaults, that is, to declare "lying flat".

Why is there such a big reaction? According to the new media, Zhong Gang Capital, which serves as the financial adviser of Aoyuan, is a licensed financial institution regulated by the Hong Kong Securities and Futures Commission, and since February this year, it has been successively hired as the financial adviser of Huaxia Happiness, Blu-ray Development, China Evergrande and Sunshine City - the situation of this long list of real estate enterprises is presumably needless to be repeated.

However, since then, although there has also been a default triggered by a related US dollar note such as Seco Financial Group, Aoyuan has survived a relatively safe period.

The sea debt lies flat

In terms of asset sales, in January, it was reported that among the overseas assets currently being disposed of by China Aoyuan, 4-5 projects have been negotiated for buyers, and the transaction amount is expected to be about 3 billion yuan.

Aoyuan Health, a property platform that was previously on the shelves, looks like it has the possibility of suspending the sale - in January, Aoyuan Health won the bid for the property service project of Hunan Branch of China Southern Airlines, which was its first entry into the airport aviation public construction service project.

In terms of developing residential properties, Aoyuan is also actively releasing favorable factors.

For example, on January 4, Aoyuan announced that its two projects in Huizhou, Huizhou Aoyuan Shangya Garden Phase II Project and Aoyuan Yubofu Project, have recently ushered in delivery.

In addition, in terms of domestic financial payment, according to the news, the investors of Aoyuan wealth management products have successively received the corresponding principal and interest in accordance with the plan since the middle of December last year. In terms of physical payment (residential, shop, parking space, etc.), Aoyuan has locked up the amount of housing in 1 month, which is close to more than half of the total scale of financial management.

However, even so, on the evening of January 19, Aoyuan investors still waited for an announcement announcing the full default of overseas foreign debt.

According to the new media, China Aoyuan mainly mentioned four foreign bonds, including the 4.2% senior notes due January 20, 2022, the 8.5% senior notes due January 23, 2022, the 7.35% senior notes due June 2023, and the 7.95% senior notes due June 2024.

The four bonds were issued in the amounts of $188 million, $500 million, $200 million and $200 million, respectively. As at the date of the announcement, the total outstanding principal amount of the notes was approximately US$1,086 million,

In response, Aoyuan said in the announcement that it will not pay the remaining principal and final interest of the January 2022 Notes on the relevant maturity date and coupon date, and will not pay the interest on the 2023 Notes and the latest instalment under the 2024 Notes after the expiration of the applicable 30-day grace period.

At the same time, China Aoyuan Group intends to adopt the same principle with respect to the Group's other overseas financial liabilities, and due to the inability to redeem the above bonds and interest, or triggering a cross-default clause, there will be a default event under all other overseas financial liabilities of China Aoyuan Group.

After all, Aoyuan still embarked on a road of "protecting the inside and not protecting the outside".

In this regard, Aoyuan explained in the announcement that the market continued to be sluggish, which hit consumer confidence, making it difficult for China Aoyuan Group to change existing goods and sell assets on reasonable terms. At the same time, China Aoyuan will carry out restructuring and has specially appointed independent financial advisors to conduct in-depth due diligence on the company's operations to assess the current liquidity and cash flow of China Aoyuan Group.

The main purpose of the assessment and due diligence is to provide a basis for formulating an optimal restructuring plan and to treat creditors and other stakeholders fairly according to their position within the capital structure of China Aoyuan Group.

According to relevant insiders, Aoyuan's declaration of default is to give priority to ensuring operation, after all, the current debt is not enough, simply do debt restructuring together.

It is worth noting that the announcement also mentions that Aoyuan has been actively looking for potential opportunities to sell assets and introduce strategic investors on terms that are in line with the overall best interests of China Aoyuan and its stakeholders. In this regard, the above-mentioned insiders also said that Aoyuan is actively striving to introduce war investment, which is the preferred plan.

In contrast, other peers, in fact, some of the companies that have recently fallen into the debt redemption crisis have made some moves to a greater or lesser extent. For example, Yuzhou proposed the approval of the debt offer exchange plan, the successful extension of Rongsheng's $780 million bond, Andraku's request for an extension of the maturity of the dollar bond and the solicitation of amendments to the default clauses of the other two dollar bonds, and so on.

Will this spring breeze blow through these housing companies after all? No one can say.

It is worth mentioning that a recent "list" of housing enterprises that are said to be formulated by the central bank that need liquidity support shows that 11 "medium and high-risk housing enterprises" include China Aoyuan.