The Yang father and daughter of COUNTRY GARDEN have passed the most difficult hurdle

Author | Zhou Zhiyu

Editor | Zhang Xiaoling

On November 5th, this day is destined to leave a significant mark in the history of "debt resolution" in real estate.

The next day, Country Garden announced that its overseas debt restructuring plan was approved by a high vote at the creditor meeting on November 5th. Country Garden's arduous negotiation, involving approximately USD 17.7 billion (equivalent to about RMB 127 billion) and lasting 300 days, has finally crossed the most critical and difficult hurdle.

With this, Country Garden has successfully reduced its debt by approximately USD 11.7 billion (about RMB 84 billion). At the same time, it is expected to confirm a maximum of about RMB 70 billion in restructuring gains, which will significantly enhance its net assets.

This was not the only good news of the day. Also on November 5th, another leading real estate company, Sunac China, received court approval for its second overseas debt restructuring.

This is not a coincidence. This is a simultaneous gathering of leading private real estate companies after enduring a purgatory-like self-rescue.

It conveys an extremely strong and urgent signal to the entire market: the path for private real estate companies to survive through negotiation is not only feasible but is also converging from individual cases into a wave; they still have a future.

Indeed, the golden era of Chinese real estate is a thing of the past, and every real estate company needs to find its own coordinates again. Leading companies like Country Garden and Sunac are also demonstrating their resilience in this deep adjustment, striving to overcome challenges.

Now, they are all gradually completing their debt restructuring, seeking the final and most important ticket to survive and move towards the second half of the industry.

Difficult Challenges

Completing a USD 17.7 billion (equivalent to about RMB 127 billion) overseas debt restructuring in 300 days, Country Garden has set another record.

For companies, speed is of the essence in debt restructuring. If the management team's energy is long trapped in the quagmire of debt, leading to a loss of morale and an inability to return to normal operations, then the debt restructuring loses its significance.

A head of investment banking at a foreign bank told Wall Street Insight that reaching an agreement with creditors within a controllable timeframe is very important.

However, Country Garden's debt restructuring is an extremely difficult and cumbersome task.

In terms of scale, the USD 17.7 billion debt makes it one of the largest restructuring cases among Chinese real estate companies in recent years.

Moreover, this USD 17.7 billion is spread across 34 overseas debts or repayment obligations. Country Garden faces an extremely complex battlefield: the plan must cover USD bonds governed by New York law, convertible bonds governed by UK law, and syndicated loans governed by Hong Kong law. Different judicial systems, different issuance structures, and different credit enhancement structures exponentially increase the complexity of the plan design.

Additionally, Country Garden's creditors are diverse, with vastly different interests. Wall Street Insight learned that Country Garden's management team led the finance team in conducting round-the-clock transoceanic negotiations with creditors for several months. They faced a large creditor group that included Chinese banks, foreign banks, real money funds, hedge funds, insurance funds, and private banks.

Country Garden must seek that unique balance point in the difficult game of balancing diverse interests From the disclosure of restructuring highlights on January 9 this year to the announcement of the Restructuring Support Agreement (RSA) on April 11, and the high vote approval on November 5, every step over the past 300 days has been a balance on the edge of a knife.

The final result is also rare in recent years' debt restructuring of real estate companies. In the overseas debt restructuring plan of COUNTRY GARDEN, Group Two (US dollar bonds and other debts) received a high approval rate of 96.03%, while Group One (syndicated loan group) also reached an approval rate of 83.71%.

To some extent, this is also a vote of confidence from creditors towards COUNTRY GARDEN.

In this game, the Yang Huiyan family has shown its sincerity. On October 13, the controlling shareholder of COUNTRY GARDEN signed an irrevocable commitment, taking the lead in fully converting the remaining portion of the $1.148 billion shareholder loan into equity.

Statistics show that since the debt restructuring in August 2023, the Yang Huiyan family has provided approximately HKD 3 billion in cash support to the company; from 2021 to the present, they have cumulatively provided cash support equivalent to about HKD 10.6 billion in the form of interest-free and unsecured loans.

The efforts of the Yang Huiyan family have also been recognized by the government. Chen Xinwen, Secretary of the Shunde District Committee of Foshan City, publicly commented at the entrepreneur conference in October that Yang Guoqiang, Yang Huiyan, and Mo Bin, “when this big ship encountered storms, did not abandon the ship, nor did they throw aside the social responsibilities and debts they should bear, but gritted their teeth and worked hard to advance in this storm.”

This sense of “not abandoning the ship” is the fundamental premise for creditors to be willing to sit down and negotiate. It also provides a guarantee for the stability of the governance structure and management operations after the restructuring.

Facing the Future

The "key step" on November 5 has brought COUNTRY GARDEN the most valuable space.

It resonates with the previous successful landing of Sunac, together providing a clear template and hope for other peers still struggling in difficulties. They have demonstrated to the market that even the largest and most complex debts can be orderly deleveraged through negotiation and gamesmanship.

At the same time, the key step taken by COUNTRY GARDEN and Sunac has effectively alleviated the market's systemic concerns about private real estate companies. It marks the industry's transition from a panic phase to a recovery phase where quality entities stabilize first.

The essence of debt restructuring is to exchange time for space. COUNTRY GARDEN's overseas restructuring systematically reshaped its debt structure from three dimensions: debt scale, term, and cost.

In an ideal scenario where all options in the plan are fully subscribed, the expected debt reduction scale is approximately $11.7 billion, equivalent to about RMB 84 billion. More importantly, the restructuring is expected to confirm a maximum of about RMB 70 billion in restructuring gains, which will significantly enhance its net assets and further solidify its financial safety cushion.

After the restructuring, the financing cost of the new debt instruments has been significantly reduced to a low range of 1.0%-2.5%, and it includes a physical interest payment option, which will save COUNTRY GARDEN a substantial amount in interest expenses each year. In addition, the debt term in the plan can be as long as 11.5 years. This more than ten-year period will provide critical and ample financial buffer space for COUNTRY GARDEN to navigate through the industry's winter, allowing it to focus more resources on business operations Previously, Country Garden's 8 domestic debt restructurings were approved at the end of September, expected to achieve a principal reduction of over 50%, with the longest term reaching 10 years.

This package of "external first, internal second, and overall coordination" debt management strategy will help Country Garden achieve significant deleveraging, creating financial conditions for a lighter operation.

Financial clearing is just the first step of a long journey. Next, Country Garden can only successfully emerge from the crisis by truly addressing operational issues and repairing its cash flow statement.

Currently, as the large-scale delivery of over 1.8 million homes over the past three years gradually approaches completion, Country Garden's rigid capital demand has begun to decrease, and overall capital pressure is expected to ease. This creates the most critical premise for the company to shift resources from "repaying old debts" to "planning for the future."

A significant operational transition has already begun. People from Country Garden revealed that as the "guaranteed delivery" tasks in some regions concluded in the third quarter, the company has initiated operational planning for new projects. This marks a transition in its strategy from fully ensuring home deliveries to a normal state of asset and debt repair and regular operations.

Of course, the old rules of the game have become ineffective. China's real estate is bidding farewell to extensive growth and entering a new stage that emphasizes quality and sustainable development. The high-quality development and new model of real estate development guided by the "14th Five-Year Plan" are the keys to this "new game."

This is also Country Garden's attempt to seek a new path for rebirth beyond self-rescue. Its strategy, centered on real estate development and supported by technological construction and management, is a proactive response to the "new model."

The journey through the storm is certainly long, but as Country Garden resolves this most difficult and complicated issue, a new chapter in its operations and corporate strategy has just begun. A healthier and more sustainable future is being shaped by these companies that uphold the bottom line and actively transform