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Real Estate Company Huaxia Xingfu Offered Debt Restructure Plan

China’s real estate companies are fighting for their survival. While the world’s focus was on how the Evergrande Group (恒大集团) will resolve its debt problem, another real estate company, Huaxia Xingfu (华夏幸福), became the first company to offer a debt restructuring plan.

Huaxia Xingfu has debts valued at 219 billion yuan (US$34 billion). On September 30, it held a conference with financial institute debt holders. After the meeting, it announced a plan to pay off or defer its debts. The announcement included the following:

  1. Sell high-quality assets to recoup about 75 billion yuan in cash (Editor’s note: This action is not a direct debt payment; all the items below are.)
  2. Sell assets, which will deal with associated debts of 50 billion yuan.
  3. Extend or settle high-priority financial debts of about 35.2 billion yuan.
  4. Pay back debts of 57 billion yuan with cash.
  5. Set up a trust with the company’s own property holdings to offset 22 billion yuan.
  6. For the remaining 55 billion yuan in debt, the company will extend, reduce interest rates, and gradually settle them through subsequent business development.

Though Huaxia Xingfu claimed that it will not run away from any debt, a senior debt restructure expert believes that the loss to the debt holders will be inevitable and the loss could be huge.

For the first item, he estimated that Huaxia Xingfu may have to sell assets worth 150 to 250 billion yuan to get back 75 billion cash (court auctions usually result in sales at 30  to 50 percent of the original values). Huaxia Xingfu will use its properties for the second item and the debt holders may recover 50 to 70 percent of their money. The third item might refer to loans not secured by properties, which on average will result in a recovery rate of 10 to 30 percent. The debt holder may get 10 to 20 percent back from the fourth item. The fifth item may have a 60 to 80 percent loan recovery. The recovery rate on the last item, the sixth, may be just 5 to 10 percent.

Source: Sina, October 1, 2021