Distressed Chinese builder Logan aims to cut leverage by US$3 billion as some creditors consent to US$8 billion debt workout plan

The Shenzhen-based developer aims to reduce its leverage by US$2.6 billion to US$3 billion over its offshore restructuring period, according to a stock exchange filing. The firm had 227 billion yuan (U$32 billion) of total liabilities at the end of June last year, according to its latest financial accounts.

The company expects to generate US$65 billion to US$75 billion of revenue from onshore property sales during the offshore restructuring period, and raise about US$4 billion to US$4.7 billion of cash to service its debts, according to its projection.

“This suggests that the company will need to adjust its balance sheet to a reasonable level to achieve a sustainable capital structure,” it added. “The group has made significant efforts to maintain stable operations, ensure the delivery of units to homebuyers, and preserve its resources, including both onshore and offshore assets and cash for the purpose of restructuring.”

Logan Group has offered a mixture of cash, convertible bonds, and new long-term notes maturing up to nine years to repay investors holding its 12 foreign-currency bonds with a total face value of US$6.65 billion. It will also offer the same combination to its controlling shareholder, who has loaned the company US$1.35 billion to tide over its financial crisis.

The developer said some undisclosed creditors have given their consent to the proposed repayment terms, according to the filing on late Friday. It will attempt to get approval from other creditors, and persuade others to drop their winding-up petitions against its units in Hong Kong.

China Aoyuan wins Hong Kong court sanction for plan to cure defaulted debts

Logan’s shares, halted in Hong Kong on January 12 for the restructuring update, will resume trading on Monday. They have dropped 1.6 per cent this month to HK$0.60, after tumbling 51 per cent in 2023.

The stock has crashed nearly 96 per cent from a high in June 2020, wiping out HK$81.5 billion (US$10.4 billion) in market capitalisation.

Chinese developers have muddled through the past three years under financial distress, triggering more than US$100 billion of debt defaults.

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Logan Group is the latest among debt-stricken Chinese home builders to seek forbearance from foreign creditors, as cash flow dried up. China’s “three red lines” measures in August 2020 also cut their access to bank and bond-market funding, while the Covid-19 pandemic cratered sales.

Others have been more successful.

China Aoyuan Group’s stock surged last week, after it won approval from a Hong Kong court to proceed with a restructuring involving more than US$4 billion of offshore debts and loan facilities, following almost a year of negotiations with creditors. China South City also averted default last month.