Creditors urge China Aoyuan to repay US$650 million in debt ahead of schedule

Translation and commentary: Jenny Ball
Editor: peacelv

China Aoyuan’s US dollar debt defaults, may trigger a cross default. (OZAN KOSE/AFP via Getty Images)

Mainland real estate company China Aoyuan Co., Ltd. (China Aoyuan) announced on December 2 that due to the downgrade of the rating, some of the terms in the overseas loan agreement were triggered. No other agreements were reached with creditors.

The announcement stated that the company has received notification from creditors that the company and/or the member companies of the group are required to repay the financing of approximately US$651.2 million in total principal amount for the borrower or guarantor due to the downgrade. As of the date of this announcement, the company has not made payments or reached agreements with these creditors on alternative payment arrangements.

The announcement stated that the aforementioned non-repayments may trigger a cross-default, and relevant creditors may require the company to repay other overseas debts in advance. That may trigger a cross-default.

According to the announcement, since the second half of 2021, Chinese real estate developers have been downgraded by rating agencies on a large scale. The overseas capital market that provides funds for the growth and development of CCP China’s real estate development industry has actually been closed for Chinese real estate developers. The company is unable to use the usual financing channels of the industry, which puts tremendous pressure on short-term liquidity.

Since October this year, China Aoyuan has been continuously downgraded by the three major international rating agencies. According to the announcement, on October 15, 2021, S&P Global Ratings downgraded China Aoyuan’s rating from B+ to B. On November 16, it downgraded CCC again; Fitch Ratings downgraded China Aoyuan on November 19, 2021. To B-, it was downgraded to CCC- again on November 24; Moody’s Investor Service Company downgraded China Aoyuan’s rating from B1 to B2 on November 5, 2021, and downgraded the rating to Caa2 again on November 22.

After the announcement, China Aoyuan’s stock price fell on the 3rd. As of the close of trading on the 3rd, China Aoyuan shares fell 11.88%.

Since the beginning of June this year, China Aoyuan’s share price has been falling continuously, from a high of 9.12 HK dollars to the closing price of 1.78 HK dollars on December 3. As a top 50 real estate company with a sales scale of 100 billion, the market value is only 4.99 billion HK dollars.

According to a Caixin report on the 3rd, Huang Lichong, co-founder of Xie Zong Strategic Management Group Co., Ltd., analyzed that from the announcement, China Aoyuan’s overseas debt will eventually go into full default.

In order to speed up the redemption of wealth management products, China Aoyuan has locked in some high-quality projects with good sales prices and fast sales flow, and has allocated 25% of the sales return attributable to the group’s equity portion or 25% of the net cash flow after the project is disposed of to the investment. A special account for product repayment supervision, specifically used to redeem the principal and interest of wealth management products.

This plan caused dissatisfaction among some overseas creditors. They questioned that China Aoyuan treated domestic and overseas creditors differently and failed to equally protect the rights and interests of all creditors.

In addition to debt, China Aoyuan’s investment products also experienced overdue payments. China Aoyuan published a “Letter to Investors” on its official website on December 2, apologizing for the investment products that have breached the contract recently.

The letter stated that up to now, the company’s related funds and Dingrong products total about 6 billion yuan (RMB, the same below), and the Dingrong products managed by third-party companies are about 2.4 billion yuan.

Wall Street reported on the 3rd that some of Aoyuan’s wealth management products have been overdue and unpaid since last week, with an initial scale of more than 100 million yuan. The 6 billion yuan involved about 1,500 investors, including more than 600 Aoyuan employees and relatives.

There was also Evergrande Group in default on the 3rd. Evergrande announced on the 3rd that on the date of this announcement, the company received a notice requesting the company to perform a guarantee obligation of US$260 million. In the event that the Group fails to perform guarantees or other financial responsibilities, it may cause creditors to demand accelerated debt maturity.

Commentator Wang Jian stated in his self-media program on the 3rd that Evergrande had a substantial default on its debts, and this default triggered a cross-default, that is, its US$19 billion creditors will demand repayment, and Evergrande will definitely go bankrupt.

Also in debt trouble is Kaisa, which stated in an announcement on December 3 that a bill with a total principal of US$400 million failed to seek renewal. The note will expire on December 7, 2012, and the principal has not been returned as of the date of this announcement (3rd).

Commentary: The world economy dominated by the real estate of the CCP has seen the collapse of the first domino of the world economic collapse from the default and cross-default of Evergrande, Aoyuan, and more.

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Disclaimer: This article only represents the author’s view. Gnews is not responsible for any legal risks.

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