9 for US$9.475m and US$9.35m,
respectively.
It later disclosed that it had purchased
US$32.4m of Evergrande’s bonds in
principal amount on March 12–13. It bought
US$10m in principal amount of
Evergrande’s 12% 2024s for US$8.8875m on
March 12. On March 13 it bought a further
US$12.4m in principal amount of the 12%
2024s and US$10m in principal amount of
Evergrande’s 11.5% 2023s for US$9.7935m
and US$8.4m, respectively.
In January, Asia Standard International
and its hotel unit subscribed to a combined
U$100m of the 12% notes due October 24
2023 that Evergrande issued through
Hengda.
Evergrande’s bonds have slumped as
coronavirus-related fears have ripped
through global markets. Its 12% 2024s aredown about 36.5 points and its 11.5% 2023s
down 27 points so far this month in bid
price terms, and were quoted at 60/63 and
71/73 on March 20, respectively, according
to Tradeweb.INDIA
NO REPRIEVE FOR YES AT1 HOLDERSYES BANKûHASûCONlRMEDûTHATûITSû!DDITIONALû
Tier 1 rupee bonds will be written down
under Indian banking regulations, leaving
bank capital investors nursing a complete
WIPEOUTûOFûTHEIRûINVESTMENTûFORûTHEûlRSTû
time in India.
In an announcement on March 14, Yes
Bank said Rs84.15bn (US$1.14bn) in
principal amount of its AT1s would bewritten down. This comprises its Rs30bn
9.5% AT1s issued in 2016 and Rs54.15bn
9.0% AT1s issued in 2017, but there is no
reference to Yes Bank’s Rs2.8bn 10.5%
Basel III-compliant perpetual non-call 10
AT1s sold in 2013 through a private
placement to Indiabulls Financial
Services.
On March 5, the Reserve Bank of India
announced that STATE BANK OF INDIA would
lead a rescue of Yes Bank and that as a result
AT1 holders would be written down to zero.
That led to protests by retail holders,
who claimed that they did not understand
the terms of the notes, and some
institutional investors, who tried to argue
that the notes should not be written down
before equity.
Indian media reported previously that
some investors had proposed that 90% of theInternational Financing Review March 21 2020 49EMERGING MARKETS ASIA-PACIFICOnshore exchange sets template
CHINA Water company first to register debt exchange with NAFMIIAnalysts have welcomed the first exchange
offer in China’s domestic bond market as a step
towards a more efficient and transparent model
for debt restructuring.
BEIJING SOUND ENVIRONMENTAL ENGINEERING,
a privately owned water and sewage treatment
company, on March 6 announced the completion
of an exchange offer for its Rmb500m (US$71m)
of 6.5% three-year medium-term notes due the
same day. The exchange offer was taken up by 11
bondholders representing Rmb400m, or 80% of
the face value of the notes.
It was the first debt exchange to receive
official prior approval from the National
Association of Financial Market Institutional
Investors through a special registration process.
Beijing Sound remains under pressure to
restructure or repay the remaining Rmb100m of
the notes, having failed to redeem the bonds at
maturity. However, the use of the exchange offer
may have wider implications for the onshore market.
“The approval demonstrates Chinese regulators’
intention to provide more avenues for bond issuers
in financial difficulty and liquidity stress conditions
to manage their maturing debt in a proactive
and transparent manner,” said Ivan Chung, an
associate managing director at Moody’s.
An exchange offer is similar to the common
practice of asking for a maturity extension in
return for a higher coupon, but analysts expect
the formal process will produce more market-
driven terms and quicker resolutions. Fitch noted
that more than a quarter of onshore defaulters
had not begun bankruptcy proceedings or made
any repayments as of end-2019.
Beijing Sound’s new bonds will mature on
March 6 2021, or one year after the original duedate, and carry a slightly higher coupon of 7%.
The bonds will be subject to an amortisation
schedule of 20% in three months and 30% in six
months. Bondholders will also have an option to
sell back the bonds on December 6 2020.
The company is facing challenges because
of China’s increasingly stringent environmental
policies, while its business operations and
external financing have been significantly
disrupted by the coronavirus outbreak. In
February, it extended the maturity of short-term
commercial paper due February 25 2020 to
November 20 2020 with a 50bp coupon step-up.REFINANCING RISK
Beijing Sound has set a template for other
companies to follow in avoiding imminent
missed payments or even bankruptcy, thereby
reducing the liquidity squeeze and providing
temporary relief, said Chung from Moody’s.
“This avoidance would in turn limit the
resulting effect on the real economy and
potential spillover to the financial market,” he
said.
“That said, for financially weak bond issuers,
the delayed repayment of their existing bonds
may not ultimately solve their operating and
financing problems. And investors, if they choose
to accept the offer, will still face the repayment
and refinancing risk for the subsequent new
exchange bonds.”
Following Beijing Sound’s example in the
interbank market, HUACHANGDA INTELLIGENT
EQUIPMENT GROUP completed a bond exchange in
the exchange-traded market on March 18.
Holders of Rmb155.41m of 5.96% bonds due
March 22, or 65% of the outstanding Rmb239mface value, agreed to an exchange for new 8.5%
notes with a maturity of March 23 2021 and a
guarantee from Shenzhen High-tech Investment
& Financing Guarantee.
Huachangda said it will pay the remaining
Rmb83.59m in principal and Rmb20.32m
interest on March 23, the first working day after
the maturity date.
An exchange offer is a common tool for
offshore bond issuers to manage debt and in
some cases avoid an outright default.
Some recent exchange offers conducted in the
offshore market by Chinese companies include
those by LVGEM (CHINA) REAL ESTATE INVESTMENT
and XINJIANG GUANGHUI INDUSTRY INVESTMENT
(GROUP).
Meanwhile, YIDA CHINA HOLDINGS has slightly
sweetened the exchange offer and consent
solicitation for its US$300m of 6.95% bonds due
April 19, and has extended the deadline to March- The original deadline was March 9 but the
Chinese property company had earlier extended
it to March 16 as the acceptance rate was below
its target.
The above examples involve exchanges
of bonds from the same issuers or the same
guarantors. But in some cases involving
struggling Chinese state-owned enterprises, the
exchange offers have been conducted by other
SOEs controlled by local governments rather
than the issuers themselves, with TEWOO GROUP
and QINGHAI PROVINCIAL INVESTMENT GROUP being
recent examples.
Chung said that more such arrangements
may emerge as the exchange offer mechanism
becomes more common in the onshore market.
Carol Chan
8 IFR Emerging 2325 p 47 - XX.indd 49 20 / 03 / 2020 18 : 57 : 17