(Bloomberg) -- A trustee of XJ International Holdings Co.’s convertible bond, held by some of Asia’s most prominent hedge funds, is trying revive a liquidation petition against the Chinese education firm.
The judge who tossed the petition earlier “failed to apply the relevant principles of contractual interpretation, which require the court to undertake a unitary exercise and focus on the meaning of the relevant words in their documentary, factual and commercial context,” according to a new lawsuit filed Monday by the trustee, the Bank of New York Mellon, London Branch.
The filing is the latest salvo from XJ’s creditors who argue that the debtor shouldn’t be able to dismiss the wind-up case through technicalities. The dismissal could set a precedent for other Chinese bond issuers to refuse debt repayment even if they have the resources to do so, the creditors said.
In August, Deputy High Court Judge Doreen Le Pichon threw out the wind-up petition on technical grounds, saying that XJ had shown there is a “bona fide dispute” that a put option hadn’t been properly exercised.
The wind-up petition was initially filed in March on behalf of a key creditor group by the Bank of New York Mellon, London Branch, which is the trustee of a $315 million convertible bond issued by XJ’s unit and guaranteed by the parent.
The convertible bond had a put date of March 2, at which point the creditors — which include Hong Kong-based Oasis Management Co., private equity firm PAG and Enhanced Investment Products Ltd. — had the right to ask the company to redeem all or part of the debt.
‘Alarming Precedent’
In her ruling, Le Pichon said a missing redemption notice was an issue. The notice was supposed to be sent from the nominee company, BNY Mellon, to the principal agent of the bond, also BNY Mellon, according to her ruling.
The creditors argued that they provided valid instructions to BNY Mellon through the clearing systems to exercise the put option. Three emails were sent from BNY Mellon to XJ International to inform about the redemption, the creditors said.
“The Decision, if it ultimately stands, may cast doubt on the validity of a myriad of other corporate actions exercised this way in the past and would thus set a truly alarming precedent,” according to a creditor statement issued in late August. “No previous issuer of public bonds has attempted to refuse payment to bondholders on such an internal procedural reason.”
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