Zhenro Properties seeks waivers from bondholders’ claims ahead of US$200 million note redemption day
Zhenro Properties has asked holders of its US$200 million perpetual note to forgive any potential default that could arise from its failure to redeem the securities due in March, citing short-term funding issues amid a market downturn.
The Shanghai-based developer said the lack of capital market funding and bank loans to property developers since the second half of last year have caused liquidity pressure that could make it unable to redeem the notes due on March 5, according to a filing to the Hong Kong stock exchange.
Zhenro is therefore seeking shareholders’ consent, at a meeting slated for March 14 in Hong Kong, to waive any claims against it if does not redeem the notes next month.
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“The company expects that its existing internal resources may be insufficient to address its upcoming debt maturities in March, including the redemption of the securities in full on 5 March,” it said in the stock exchange announcement.
Undated photograph of Zhenro Properties’ signage. Photo: Weibo alt=Undated photograph of Zhenro Properties’ signage. Photo: Weibo>
The disclosure Friday invalidated the January statement that said Zhenro was planning to redeem the outstanding perpetual note in full. That statement did not reassure investors for long. Just last week, speculations that the company would skip its redemption surfaced, sending the US$200 million perpetual bond, which pays 10.25 per cent coupon, down to 50 cents on the dollar at one point on Friday.
“The market condition in the real estate sector remains under pressure in 2022,” Zhenro said on Friday. “In the absence of a sharp recovery in the market and a resurge of various financing options, the company remains cautious about its liquidity in the near term.”
An undated photograph of Zhenro Group’s founder Ou Zongrong. Photo: Handout alt=An undated photograph of Zhenro Group’s founder Ou Zongrong. Photo: Handout>
Zhenro would need to get a majority of the shareholders’ approving its proposal in order for the waiver to become effective, it said. Failing this, it may not be able to fully redeem the securities, and may consider a debt restructuring.
To obtain shareholders’ support, Zhenro said it would pay bondholders a consent fee of US$10 per each US$1,000 principal amount, in addition to the step-up fee of US$7.5 per each US$1,000 principal amount due at the end of March.
Founded by Ou Zongrong, a delegate to the legislature’s advisory body the Chinese People’s Political Consultative Conference (CPPCC), Zhenro is well clear of the so-called three red lines – lending limits imposed by the Chinese central bank on highly leveraged developers.
Sources: Northeast Securities, Tianfeng Securities, company reports. SCMP Graphics alt=Sources: Northeast Securities, Tianfeng Securities, company reports. SCMP Graphics>
Unlike many other property developers who have repeatedly missed their payments, Zhenro has a relatively clean repayment record, having just serviced coupon payments for two dollar notes this month.
Still, it has US$2.47 billion of bonds coming due this year. Its short term cash flow is also pressured by a decrease in sales proceeds.
Its aggregate contracted sales shrank 29.5 per cent in January from a year ago, due to buyers’ concerns about the health of property developers, and banks’ reduced home loans to potential buyers, Zhenro said on Friday.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP’s Facebook and Twitter pages. Copyright © 2022 South China Morning Post Publishers Ltd. All rights reserved.
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