Sino-Ocean bondholders submit counter restructuring proposal to London court

By Clare Jim

HONG KONG (Reuters) - The ad hoc bondholder group of state-backed Sino-Ocean Group has submitted an alternative offshore debt restructuring proposal to a London court in an intensifying battle between creditors and the company, according to a source and documents seen by Reuters.

The group, which holds more than 25% of the Chinese property developer's offshore notes, has been strongly opposing the company's proposal since its announcement in July contending that it divides creditors into four classes and gives preferential treatment to major shareholder state-owned China Life, which is also holding some of the company debt.

Sino-Ocean has started a parallel scheme process in Hong Kong and the UK to pass a plan to restructure its $5.64 billion offshore debt. The move, aiming to bring together all the debt governed by different jurisdictions, is a rare tactic.

Many developers have defaulted on their offshore debt since the property sector plunged into a debt crisis in mid-2021, and most are yet to complete a restructuring.

The alternative proposal, which is based on the same amount of new notes, perpetual securities and mandatory convertible bonds proposed by the company, sets a fixed conversion price for the mandatory convertible bonds in each classes, changing from a minimum conversion price.

The proposal aims to prevent China Life's shareholding from rising significantly above 50% when the company's stock price gains in the future, said the person who attended a call with wider bondholders on Thursday that was hosted by Linklaters, the legal advisor of the ad hoc group.

Reuters was also able to confirm the proposal from documents presented on the call.

Linklaters and Sino-Ocean did not immediately respond to requests for comment.

Under the group's proposal that aims to raise the debt recovery of all creditors, creditors would hold 95% of company shares after the restructuring, compared to a 49.3% maximum shareholding under the company's plan.

The alternative proposal also adds a rights issue option for the major shareholder, meaning it will have to make a contribution if it intends to keep a large shareholding.

The ad hoc group urged other bondholders to support the alternative proposal, saying that when China Life's votes are discounted, Sino Ocean's proposal has failed to get enough support from creditors except in Class A.

Class A represents the bank lenders and Class B, C and D cover senior note and perpetual bond holders.

Sino-Ocean is facing a winding-up petition in Hong Kong, filed by The Bank of New York Mellon, the bond trustee of the ad hoc group.

(Reporting by Clare Jim; Editing by Shri Navaratnam)