(Bloomberg) -- Two major Chinese developers are moving closer to unveiling plans to overhaul their local debt, as defaulters shift their restructuring focus from global creditors.
Representatives of Sunac China Holdings Ltd. and Logan Group Co. told creditors in recent days that they aim to finalize and present their debt proposals covering local bonds and loans in the coming months, according to people familiar with the matter.
The two firms’ plans look similar in structure, including options such as maturity extensions and issuance of new debt of a reduced size to replace existing borrowings, said the people who requested anonymity discussing private matters.
Sunac, which became the first major Chinese builder to reorganize its offshore debt late last year, is looking to deliver its proposal for domestic creditors as early as in December, the people added.
The emergence of the developers’ onshore debt plans would mark progress in a sector where restructuring efforts have so far concentrated on overseas bondholders and lenders, who have increasingly taken Chinese defaulters to court in Hong Kong. Local creditors of distressed firms, in contrast, have been subject to piecemeal solutions such as constant payment delays that offer less transparency, certainty and enforceability.
“As the value of these builders’ assets has plummeted, there needs to be a reduction or discount on the debt side for the companies to have restructuring value,” said Huan Li, co-founder of Forest Capital Hong Kong Ltd. “Once a restructuring plan is in place, the company can focus more on delivering delayed housing projects and may survive.”
Sunac and Logan are working with domestic investment banks to draw up the debt blueprints, the people said, adding that details of the proposals have yet to be finalized. If approved by creditors, the proposed restructuring would replace the bond maturity extension plans unveiled by the two firms about two years ago, they added.
Sunac and Logan didn’t offer comment when reached Tuesday.
Since China’s property crisis began three years ago, China Fortune Land Development Co. is the only defaulter that has unveiled a holistic local debt restructuring blueprint.
“Such holistic onshore restructuring helps resolve builders’ debt problems and development in a more systemic and efficient way,” said Willam Zhang, partner at Merits & Tree Law Offices. “It would also help restore confidence in developers by removing irregularities and making the future more predictable for creditors.”
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