PJT is in contact with Vanke's US dollar bondholders: calling for the formation of a creditor group to proactively discuss debt management and other matters with the company

On December 10th, The Paper learned that the well-known investment consulting firm PJT Partners is contacting the holders of US dollar bonds under Vanke, urging them to form a bondholder group (AHG) to proactively engage with the company to discuss debt management and other operations.

Currently, Vanke has two outstanding US dollar bonds, namely VNKRLE 3.975 11/09/27 and VNKRLE 3.5 11/12/29, with balances of USD 300 million and USD 1 billion, respectively. It is reported that both bonds are issued by Vanke's wholly-owned subsidiary Vanke Property (Hong Kong) Co., Ltd., and Vanke provides a maintenance agreement for the bonds, involving a commitment to repurchase equity.

The maintenance agreement is a "unique" credit enhancement measure for Chinese US dollar bonds. According to Zhong Lun Law Firm, the structure of the maintenance agreement typically consists of documents and other related commitments provided by the issuer's domestic parent company, including maintenance agreements and equity repurchase agreements. If the offshore bond issuer faces payment difficulties, the maintenance provider will offer support through methods such as purchasing equity in the offshore issuer or providing additional liquidity to ensure the normal maturity and repayment of the bonds.

PJT Partners also suggests that holders proactively negotiate with Vanke to convert the bonds into Vanke's H-shares at a predetermined premium or upgrade from unsecured creditors to secured creditors, reducing principal in exchange for higher recovery certainty and priority.

It is reported that Vanke's offshore assets, maintenance agreements, and potential liquidation triggered by defaults will all become bargaining chips for offshore creditors in negotiations.

The issuance documents for the aforementioned Vanke US dollar bonds clearly state that the maintenance agreement does not constitute a guarantee provided by the company for the issuer's obligations under the notes; the equity repurchase commitment is a specific asset disposal and capital injection mechanism that occurs after a default, but its effectiveness is subject to a series of external conditions.

However, the obligations of the maintenance provider are typically not unlimited and will stipulate that they must "make their best efforts" to provide support to the issuer within their capabilities.

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