(Bloomberg) — Chinese developer Guangzhou R&F Properties Co. is set to skirt a potential default by partially buying back a dollar bond originally due Thursday and extending repayment on the rest.
The firm will repurchase $116.4 million of a $725 million note under a tender offer, according to company filing to the Hong Kong exchange Tuesday. The maturity deadline on the remaining $608.6 million of principal has been extended by six months, it said.
Concerns about Guangzhou R&F’s financial health have been growing in recent weeks as a historic credit crunch engulfing China’s property industry sent borrowing costs soaring and spurred defaults to a record high. The firm — whose businesses include property development, management and hotel services — risked missing payment on the note if the exchange wasn’t completed.
“The tender amount is much lower than the expected amount of $300 million, indicating lower cash available than investors expected,” according to Bloomberg Intelligence analyst Daniel Fan. Still, the firm has no imminent default risks, he said.
The company had previously cautioned that cash earmarked for the partial repayment offer could be materially less than a projected $300 million because of delays to some planned asset sales. Guangzhou R&F is making payment on about 16% of the note’s principal. Funds used to settle the repurchase, related interest and consent fee total about $104 million.
The bond fell to 65 cents on the dollar by last week, according to prices compiled by Bloomberg. The firm did not immediately respond to request for comments Tuesday afternoon.
“Whether R&F can make repayment depends on its asset disposal progress, as it has basically lost its refinancing ability” even with a 6-month extension on the note, according to Ting Meng, a senior credit strategist at Australia & New Zealand Banking Group Ltd. Fitch Ratings downgraded the borrower to C from B- in December due to the tender offer and consent solicitation, calling the effort a “distressed debt exchange.”
The builder facing a series of key payment tests over the coming months, with 6.6 billion yuan ($1.04 billion) of local notes maturing in April and May as well as a $288 million dollar bond due July, according to Bloomberg-compiled data. Guangzhou R&F needs to repay or refinance some $3 billion in bonds this year excluding the note being repurchased and extended.
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