(Bloomberg) -- Chinese developer Country Garden Holdings Co. proposed new terms with key banks that would slash its debt and lower borrowing costs, as the defaulted property firm inches toward an offshore restructuring.
The company said it reached an understanding with a coordination committee, which comprises seven banks that are long-term business partners of the group, according to a filing on Thursday. If implemented, the proposal would enable the firm to achieve “significant deleveraging,” with a targeted debt reduction of as much as $11.6 billion.
Country Garden’s proposal forms the framework for further negotiations, it said. The company has become one of the biggest casualties of China’s real estate crisis, with 1.36 trillion yuan ($185 billion) of total liabilities, according to its unaudited 2023 interim results. The progress follows lengthy negotiations with offshore bondholders after the company defaulted on its dollar debt more than a year ago.
The company also proposed a debt maturity extension of as much as 11.5 years, and asked for a reduction in funding costs, with a targeted decrease in the weighted average borrowing cost to about 2% a year from 6%.
The controlling shareholder of Country Garden is considering converting its existing loan to the group — which has an outstanding principal of $1.1 billion — into shares of the firm or its subsidiaries. Chairman Yang Huiyan held almost 52% of the company as of September, according to data compiled by Bloomberg.
The coordination committee consists of lenders that hold or control about 48% of three syndicated loans with a principal amount of $3.6 billion, the company said in the filing.
High Stakes
The developer, based in the southern city of Foshan, said in July it expected key creditor groups to agree on a debt-term sheet by the end of September. It missed the self-imposed target date, Bloomberg reported. By late December, the firm was still negotiating with its key creditor groups on the economic terms of the overall offshore liability restructuring plan.
The stakes of developing a restructuring proposal are high. Companies that are unable to come up with a viable debt plan face the risk of liquidation. Country Garden is scheduled to return to court on Jan. 20 over a so-called winding-up petition.
Country Garden has suspended trading of its shares in the Hong Kong market since early last year after postponing the publication of its annual report. Shares will be suspended from trading until further notice, it said on Thursday.
The company is scheduled to announce delayed earnings for 2023 and the first half of 2024 next week.
Cash Flow
Country Garden had interest-bearing liabilities of about $16.4 billion in offshore debt as of the end of 2023, it said in the Thursday filing. Its projected net cash surplus available to be distributed offshore between 2024 to 2039 is estimated to be 20 billion yuan to 25 billion yuan.
Country Garden said it’s also been engaging with an ad hoc group that collectively holds about 30% of some $10.3 billion worth of US dollar senior notes and Hong Kong dollar convertible notes.
Once China’s largest developer by sales, the builder continues to struggle amid a prolonged property crisis in the world’s second-largest economy. The company’s contracted sales extended declines last month, marking a 73% annual drop last year, according to Bloomberg calculations based on its disclosure.
Chairman Yang said recently the company will focus on delivering homes in 2025 and repairing its balance sheet. The company expects fewer home completions compared with last year.
(Updates with more details from the filing throughout the story.)
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