(Bloomberg) — Some creditors of Sino-Ocean Group Holding expressed concerns about the Chinese builder’s pursuit of a restructuring tactic in UK courts, seeking to avoid a potential ruling that they fear would be unfair to them.
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Sino-Ocean, which was sued in Hong Kong by a bondholder group seeking liquidation, convinced a judge in the city Monday to adjourn a hearing on the matter until Dec. 23. The adjournment is needed partly to assess Sino-Ocean’s plan to pursue “parallel” restructuring processes in the city and the UK, Judge Linda Chan said Monday.
In the plan, the company wants to settle restructuring terms with loan creditors, known as Class A, in Hong Kong, as the loans are governed by the city’s laws. It’s also tapping into an insolvency practice in the UK that allows a judge there to approve proposed terms for all forms of debt without a buy-in from all creditor classes, so long as they’re greenlit by at least one class and meet certain conditions.
UK court involvement was inevitable given that the bonds in question were subject to laws in that country. But the deliberations mark an escalation of tensions among the parties, as Sino-Ocean may be looking to take advantage of a still-rare tactic in an offshore jurisdiction while some progress seemed to be emerging in negotiations.
“The company has not been transparent,” a lawyer who represents the liquidation petitioner said at the hearing Monday, asking for an immediate wind-up order. “The company understood the opposition from the bondholders, but it just doesn’t care because it’s going to cram down the creditors of B,C and D Class,” he said, referring to three bondholder groups.
The Bank of New York Mellon, London Branch, working on behalf of a bondholder group, filed the wind-up petition against Sino-Ocean in June, related to the company’s non-repayment of a 3.25% dollar bond due 2026.
Once considered one of the stronger names among China’s developers, the company in July proposed a restructuring plan that divided creditors into the four classes. Sino-Ocean has said that more than 75% of a lender group holding loans has agreed to the proposal, which calls for restructuring about $5.6 billion into $2.2 billion of new debt and exchanging the remaining claims into other types of securities.
But other creditor groups’ support levels are below 20%, the petitioner’s lawyer said at Monday’s hearing, referring to evidence submitted by the company to court last month.
“There is a vast difference in treatment among creditors. and there is a huge gap of the support level among different groups,” the lawyer said.
Sino-Ocean declined to comment.
“If the restructuring plan is sanctioned, we expect this to be examined closely by other Chinese developers,” said Jonathan Leitch, a partner at law firm Hogan Lovells in Hong Kong who specializes in restructuring.
While granting the adjournment, Chan said she has “real concern” over “lacking transparency and equality,” as asserted by creditors. Sino-Ocean should pursue “fairness” in restructuring, she said.
The UK introduced changes to its insolvency laws in 2020 that allow a judge to force through a plan in the face of some creditor opposition in a way to aid the survival of otherwise viable companies.
In its filing, Sino-Ocean said a hearing at a UK court is scheduled for Oct. 18. It is also planning for a hearing in a Hong Kong court on Oct. 31 to seek an order to convene with creditors for approval of the Hong Kong portion of the parallel process.
Sino-Ocean is far from the first company to come to London in an attempt to force through a restructuring. Perhaps most notably, German real estate firm Adler forced through a reorganization despite the objection of one creditor group by using an English-law restructuring plan. This was later overturned after an appeal.
Other Chinese real estate firms have also used London as a venue for their restructuring plans. Loose rules around the extent to which a company needs to do business in the UK in order for a restructuring hearing to be convened there have drawn debtors to come to English courts to cut deals with creditors.
–With assistance from Lucca de Paoli and Emma Dong.
(Updates with lawyer comment in eleventh paragraph.)
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