Sidley Austin and Appleby advise on China Fortune's debt restructuring

Sidley Austin and Appleby advise on China Fortune's debt restructuring

It was the first English scheme of arrangement for a real estate developer since the industry crisis that began in 2020

Sidley Austin and Appleby have assisted China Fortune Land Development (CFLD) to complete a USD4.96 billion offshore debt restructuring, the largest of its kind in the country.

The packaged solution to CFLD's financial risk of offshore debt distress was approved by an English court.

Under US laws, the extension of the US dollar debt requires the consent of 90 percent or all creditors. However, the threshold can be reduced to 75 percent under UK laws. But most debt extensions are conducted under US laws.

According to the restructuring plan, all existing bonds are extended for eight years and the new bonds bear interest at 2.5 percent 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.

Additionally, each scheme creditor could choose from the combinations of a series of straight bonds and another series of new bonds convertible into an equity interest in an onshore business portfolio.

It is considered the only successful restructuring transaction to date in the real estate sector with a debt-to-equity swap element. And also the first transaction to deal with the new UK sanctions regime by use of a bespoke offshore trust structure.

David Bulley, the leading partner of Appleby's team remarked, "The transaction will be an important precedent for many of the ongoing China real estate restructuring mandates. 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.

Meanwhile, Richard Grasby, the partner from the Hong Kong regulatory and trusts group, advised on issues involving novel sanctions and offshore trusts. The Hong Kong dispute resolution group also advised on related matters.

Earlier, Sidley Austin had advised on two similar projects, R&F Properties' USD4.9 billion debt restructuring and Modern Land's debt restructuring by a scheme of arrangement in the Cayman Islands.

The Sidley Austin team was led by Renee Xiong, the capital markets and M&A partner and Mark Knight, partner and co-head of the restructuring group in London.

They were supported by restructuring partners Jifree Cader and Gordon Davidson, and litigation partner Matthew Shankland.

Meanwhile, the ad-hoc committee, in which some creditors pushed back on the restructuring plan, was represented by Latham & Watkins.