Sidley Austin and Appleby assisted China Fortune Land Development (CFLD) to complete a USD4.96 billion offshore debt restructuring, the largest of its kind in China.
It was also the first English scheme of arrangement of a Chinese real estate developer since the industry crisis that began in 2020.
David Bulley, the leading partner of Appleby’s team, said “this transaction will be an important precedent for many of the ongoing China real estate restructuring mandates and the debt-to-equity swap elements and structuring for Russian sanctions, in particular, can be expected to be seen in more transactions in this space”.
Bulley is the Hong Kong-based managing partner, the head of Asia private equity and M&A, corporate restructuring and global co-head of SPACs at Appleby.
Partner Richard Grasby, from the Hong Kong regulatory and trusts group, advised on issues involving novel sanctions and offshore trusts, while the Hong Kong dispute resolution group was also on hand to advise.
Sidley Austin had previously advised on two similar projects, namely R&F Properties’ USD4.9 billion debt restructuring and Modern Land’s debt restructuring by a scheme of arrangement in the Cayman Islands.
Capital markets and M&A partner Renee Xiong and partner Mark Knight, the co-head of the restructuring group in London, led the Sidley Austin team.
The team had support from restructuring partners Jifree Cader and Gordon Davidson, and litigation partner Matthew Shankland.
Latham & Watkins represented the ad-hoc committee, in which some creditors had been pushing back on the restructuring plan.
An English court approved the packaged solution to CFLD’s financial risk of offshore debt distress on 23 January, which would be implemented on all bondholders.
Under US law, the extension of US dollar debt requires the consent of 90% or even all creditors, however, the threshold can be reduced to 75% under UK law. Most debt extensions are conducted under US law.
According to the restructuring plan, all existing bonds are extended for eight years and the new bonds bear interest at 2.5% per annum, payable at maturity.
Each scheme creditor was issued a series of new bonds partially convertible into units of an onshore property trust with a specified asset sale undertaking.
In addition, each scheme creditor could choose from combinations of a series of straight bonds and another series of new bonds convertible into equity interest in an onshore business portfolio.
It was the only successful restructuring transaction to date in the real estate sector with a debt-to-equity swap element, and the first transaction to deal with the new UK sanctions regime by use of a bespoke offshore trust structure.
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