The turmoil over the revision of the terms of the three R&F dollar bonds has finally come to an end.
On April 5, R&F Properties' subsidiary, EasyTactic, announced that all three of its US dollar bonds had been met. The maturities of the three US dollar bonds are scheduled for 2025, 2027 and 2028, respectively.
It is reported that at the special resolution meeting held on April 5, the number of attendees met the statutory requirements and was approved by the majority of noteholders.
It is worth noting that on March 15, R&F Properties' subsidiary, Elo Limited, announced that it would re-announce the consent solicitation project to provide creditors with a higher consent solicitation fee, which will be paid in cash of $5 for every $1,000 principal.
Exchange of offer details
Specifically, the three US dollar bonds involved in this event are: GZRFPR6.507/11/25, GZRFPR6.507/11/27 and GZRFPR6.507/11/28, with an exchange offer expiring at 4 p.m. London time on 3 April 2024, with a total principal amount of US$1,528 million validly tendered existing notes.
Opinion New Media retrieved the terms of the exchange offers for TrancheA and TrancheB in the three US dollar bond exchange offer memoranda and it is reported that the offeror will (A) announce the initial amount of funds raised on the trading website, and (B) identify and separately notify each interim key investor applicant and each interim investor applicant the steps required to consider a valid key investor applicant or investor applicant.
Upon completion of items (A) and (B) above, the Provisional Key Investor Applicant will be deemed to be a valid Key Investor Applicant and will be considered for distribution pursuant to the TrancheA and TrancheB Exchange Offers.
and if either of (A) and (B) is not satisfied, the Provisional Key Investor Applicant will not be considered for distribution under the TrancheA and TrancheB Exchange Offers, except that the entire principal amount of the Existing Notes covered by a valid consent instruction submitted pursuant to the Consent Solicitation Memorandum will still be deemed to be a vote in favour of the Special Resolution, as set forth in the Consent Solicitation Memorandum.
In addition, the Memorandum adds that all KYC (i.e., Know-Your-Customer) checks conducted by or on behalf of the Offeror to the satisfaction of the Escrow Agent will be completed and the required amount of such existing Notes corresponding to its related Investor TrancheB commitment will be deposited into the escrow account on April 16, 2024.
Upon completion of the above options, the Provisional Investor Applicant will be treated as a valid Investor Applicant and will be deemed to be allocated under the Tranche A and Tranche B Exchange Offers. If either is not satisfied, the Provisional Investor Applicant will not be considered for distribution under the Exchange Offer for Batches A and B, but the aggregate principal amount of the Existing Notes for the purpose of a valid consent instruction submitted pursuant to the Consent Solicitation Memorandum will still be deemed to be a vote in favour of the Special Resolution, as set forth in the Consent Solicitation Memorandum.
除了Slice A和SliceB交换要约外,富力地产方面还淮备了Slice C交换要约。
Pursuant to the terms of the Tranche C Exchange Offer Offer, the Offeror will distribute the Tranche C Perpetual Notes through an unmodified Dutch-style auction procedure. The Offeror will announce the allotment of the Tranche C Loan in due course and contact each holder regarding its allocation.
According to the Memorandum, the Offeror shall not be under any obligation to accept any existing Notes submitted pursuant to the Exchange Offer. Whether or not the Offeror accepts any exchange of the Existing Notes of the TrancheC Perpetual Notes pursuant to the TrancheC Exchange Offer is at the sole discretion of the Offeror and the Offeror may reject any such exchange for any reason.
Existing notes can only be deposited with the escrow agent after the KYC review is completed. Accordingly, noteholders are advised to complete their KYC clearance as soon as possible to ensure sufficient time to deposit their existing notes prior to the Tranche B deposit deadline (in relation to the Tranche A and Tranche B Part B Exchange Offer) or the Tranche C deposit deadline (in relation to the Tranche C Exchange Offer).
Trade cause and effect
The more complicated-sounding exchange offer stems from the consent solicitation announced by R&F Properties on 28 February 2024, when R&F Properties issued an announcement on the Hong Kong Stock Exchange seeking to agree to amend the terms of some of the bonds issued by its subsidiary, Elo Limited, involving the sale of London assets, and the intention to delete the clause "disposal of designated London assets and provision of security for designated London accounts".
Finally, on April 5, the consent solicitation for the three tranches of senior unsecured bonds for 2025, 2027 and 2028, totaling approximately US$5.7 billion, was approved to remove the restrictive covenants and commitments associated with the sale of the One Nine Elms project in London.
Overall, the consent solicitation was intended to allow R&F to sell the London Project to the buyer, London One Limited, in order to avoid a potential default on the project's loan. In fact, sales of London projects have been slow since 2022 and it is expected to be extremely difficult to reach the £240 million sales target on 13 May, which will lead to R&F defaulting on project loans, which in turn will trigger a cross-default on US dollar bonds. In order to preserve the value of the London Project as much as possible and avoid the project being taken over by the lenders, and to avoid a subsequent default on its entire debt, R&F chose to sell the London Project to the buyer on reasonable commercial terms.
In conjunction with the consent solicitation, the Purchaser simultaneously initiated an Exchange Offer to raise cash to repay the Project Loan, and to acquire US Dollar Bonds to pay the transaction consideration for the acquisition of the London Project, and to exchange the existing US Dollar Bonds for new perpetual bonds issued by the Buyer and backed by cash flows from the London Project.
Approximately £800 million of the project loan will be repaid following the completion of the London project sale, as well as the elimination of at least US$1.05 billion of senior bonds.
Viewpoint New Media learned that when the consent solicitation was just disclosed, the market's suspicious voices accounted for half of the country, and R&F Properties' operation was also labeled as a "second default".
In this regard, some people in the capital market admitted to Guandian New Media that R&F is mainly dealing with the solvency crisis, and the current situation of the company may still be deteriorating. "Although there are objections in the market to R&F Properties' revision of the terms, arguing that this may constitute the risk of a second default, from the perspective of deeper economic and financial logic, there are more complex considerations behind the creditors' final agreement to modify the conditions. ”
In fact, R&F Properties' consent solicitation is currently the largest consent solicitation in Asia outside of Japan, and the first real estate transaction in China to involve a consent solicitation, a third-party exchange offer and an asset disposal.
It is understood that due to the complex design of the transaction structure, J.P. Morgan, as the main lead of the transaction to solicit agents, contacted more than 100 investors in total, arranged more than 20 investor meetings, and increased the partial consent rate. In this regard, Guandian New Media had a close exchange with JPMorgan Chase to get a closer understanding of the cause and effect behind the consent solicitation.
"It's not an easy project. At the end of the day, we want to be able to use the equity in the project to help the company reduce its debt, but only if the equity in the project can be sold, which requires the consent of the bond investors first. ”
Xi Fangshuo, head of J.P. Morgan's China Real Estate Investment Banking Department, said that in the process of facilitating the rollover of the three bonds in 2022, R&F used the remaining cash flow of the London project as one of the credit enhancement measures for the bonds. When the cash flow from the sale or sale of the London Project has fully repaid the project loan and other costs of the London Project, it will be preferentially used to repurchase or redeem US dollar bonds. "So in this case, if R&F wants to sell the London project and the buyer will pay the transaction consideration in US dollars, it needs to get the consent of all creditors. ”
"Some investors only see the credit enhancement project being taken away, but in fact, this credit enhancement project will either be taken over by the project's creditors in the future or sold to buyers. Xi Fangshuo said frankly that under different options, the choice that can allow bond investors to realize the best interests must be to sell the project to the right buyer and reduce debt at the same time. In fact, if the project loan defaults, it will result in the London project being taken over and auctioned off by the project lender, and the residual value of the project will be very little for investors, and the timeline will be highly uncertain. The deal gives investors in all companies' dollar bonds a chance to maximize the value of their bonds, similar to a "bail-out" opportunity.
R&F's consent solicitation is fundamentally different from ordinary debt management projects such as extension and interest reduction, and this is not a rollover debt management project, which also leads to the market and some investors believing that the model structure of consent solicitation + exchange offer is complex.
"From an investor's point of view, the first is to consider whether to participate in the consent solicitation, the second is to consider whether to participate in the exchange offer, and finally whether to participate in the exchange offer with cash + bonds or only with bonds. ”
Asset AB side
"Any asset has different values in the eyes of different people. "For R&F, in the current tight financial situation, using assets to achieve a win-win situation for all parties is actually the most ideal result.
"The lender on the project can recover the loan in full and realize the return, and there is no need to go through the winding-up process. R&F bond investors can consider how to maximize their own interests, either by exchanging their existing bonds for perpetual bonds backed by the cash flow of the London project and sharing the results of the project more directly, or by choosing not to participate in the exchange offer and continue to hold R&F US dollar bonds, which will benefit from the decline in R&F's overall debt level and improved financial position while obtaining the consent fee. Buyers can acquire the One Nine Elms project in London to maximise asset value. ”
Xi Fangshuo said that R&F used the form of consent solicitation + exchange offer this time to directly use the project to eliminate debts, which is a more innovative method.
"This transaction achieves two purposes at the same time, one is to revitalize assets, and the other is to reduce debt. When asked about R&F's future plans for debt treatment, Xi Fangshuo said that it is inconvenient to comment, but for real estate companies like R&F, it is necessary to continue to reduce debts and revitalize assets in the future.
J.P. Morgan's head of debt capital markets in Hong Kong, Chan Siu-lun, also said that the consent solicitation is also a debt reduction to a certain extent, which shows that R&F is actively trying to find ways to optimize the overall debt structure.
In fact, this is the third time that JPMorgan Chase has led a R&F debt management transaction, and the former has a better grasp of the latter's debt situation.
According to Guandian New Media, R&F's three US dollar bonds totaled $5.7 billion, and there were a large number of investors behind them, many of which came from private banks, and JPMorgan Chase took the initiative to contact more than 100 investors from the beginning of this transaction.
"These 100 also include a lot of private banks, and there may be more than a dozen or hundreds of customers behind each private bank, and we have communicated with the key private banks and the customers behind the private banks one by one. ”