CORRECTION - Asia-Pacific Restructuring: China Aoyuan Group’s US$7.2bn debt restructuring
New template
China Aoyuan Group’s restructuring deal pioneered a dual scheme of arrangement structure to cram down a structurally subordinated dissenting class of investors, something other Chinese developers are attempting to replicate.
Moelis, as financial adviser to an ad hoc group of bondholders, separated Aoyuan’s debt into two groups: one totalling US$4bn of US dollar bonds, syndicated loans and other claims with an inter-creditor agreement; and the second totalling US$2bn of private bonds and loans, without an ICA. Including accrued interest, the two groups had claims totalling US$7.2bn.
Moelis argued that ICA debt, benefiting from guarantees that hold valuable onshore and offshore assets, should rank senior to non-ICA debt, which, without such an asset package, had little value in liquidation.
Two parallel schemes were set up: the China Aoyuan scheme, giving creditors value at the offshore holdco level; and the Add Hero scheme, which offered creditors considerations derived from the onshore and offshore assets. ICA debt holders were allowed to vote in and receive considerations from both schemes, while holders of non-ICA debt were only included in the Aoyuan scheme.
A combination of an eight-year 5.50% senior note, a five-year mandatory convertible bond, a perpetual note and new shares were offered for the Aoyuan scheme, and a three-tranche bond with tenors of six, seven and eight years were offered for the Add Hero scheme. Participants in the Add Hero scheme also stand to benefit from the repayment of some of their notes with the proceeds of offshore asset sales estimated to achieve a seven-cent recovery, or US$50m, by March 2025. It also ringfenced future cashflows from several onshore urban renewal projects.
Aoyuan gained support of 79.11% of holders by value for the Aoyuan scheme despite the opposition of private creditors, and 88.31% for the Add Hero scheme, meaning both passed the 75% approval threshold.
The private creditors challenged the dual scheme in the sanction hearing, but a Hong Kong court dismissed their argument and sanctioned the deal in January.
The successful completion set a template for other developers, including Kaisa Group Holdings, to arrange parallel schemes to increase the chance of success for their restructurings.
Critically, Aoyuan closed its restructuring while a strategic investor, Multi Gold Group, was in discussions with the company. The deal left flexibility for the investor to come in later through either new shares with Aoyuan buying back MCBs or an option that allowed the investor to redeem the entire outstanding amount of MCBs. The investor later invested in the company in September by buying existing shares from the chairman.
KPMG was financial adviser and Linklaters was legal adviser to the company. Weil was legal adviser to the ad hoc group alongside Moelis.
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