(Bloomberg) -- China Fortune Land Development Co. is again pitching an unorthodox debt-reduction plan, after achieving success earlier this year in clearing up some 10 billion yuan ($1.4 billion) of borrowings at a discount.
The Chinese developer privately proposed a plan to some creditors, giving them an option to transfer their debt to an unnamed state-owned firm in Langfang city, where the builder is based, according to a copy of the proposal dated Oct. 12 and seen by Bloomberg News.
To gain support from the SOE, China Fortune Land would also transfer an unknown amount of assets, including receivables, to the firm, according to the proposal. The builder expects to reduce its borrowings by around 20 billion yuan ($2.8 billion) after the completion of the new plan.
Eligible creditors are obliged to offer additional credit, equivalent to the amount of their debt holdings, to either the SOE or its designated entity, with a tenor of eight years and annual interest rate no more than 3.85%.
The developer began to explore different approaches to debt reduction after planned asset sales were stymied by China’s prolonged property slump. If the new plan is successful it may offer lessons for other defaulted developers looking to reach restructuring deals with creditors.
China Fortune Land didn’t offer a comment when reached Wednesday. An earlier plan had creditors selling their debt at a 90% discount to Bazhou Yongsen Real Estate Development Co. in Langfang city, Bloomberg reported.
In that deal, they didn’t have to offer new borrowings to the little-known private firm. Whereas in the newest plan, the SOE assumes responsibilities for the borrowings.
China Fortune Land failed to repay one of its dollar bonds more than three years ago, which marked the beginning of the property crisis. The 26-year-old company, which built housing complexes in smaller Chinese cities and owned commercial properties, defaulted on its onshore bonds in 2021.
Since the builder’s first default, creditors have agreed to restructuring agreements for over 190 billion yuan of domestic and international debt, according to a company filing.
The company proposed to pay 30% of its onshore bonds’ principal in multiple installments by the end of 2023, depending on the progress of its asset sales. However, the progress was “severely” below expectations due to a sluggish market, prompting the builder to come up with the new plan to reduce debt, according to the proposal.
--With assistance from Emma Dong.
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