sino-ocean gp (03377), which has long been in the center of the storm, finally sees the dawn before the dawn.

Before the opening on October 29, Sino-Ocean Group took the lead in announcing the latest progress of overseas debt restructuring, which covers existing debt instruments, including existing syndicated loans, existing bilateral loans, and existing notes, with a total outstanding principal of approximately 5.636 billion US dollars. By noon of the same day, Sino-Ocean Group announced the redemption of 0.2 billion US dollars of the 3.8% annual interest rate green bonds due next year, undoubtedly once again providing the market with a reassurance.

In fact, Sino-Ocean Group's overseas debt restructuring process has always been highly anticipated. Benefiting from this bullish news, Sino-Ocean Group opened higher on October 29, once surging over 9%, then retracing some gains, but still closed up by 1.56% for the day, becoming a rare "bright spot" among the mainland real estate stocks that almost all declined that day.

(Market source: Futu)

Over 5.6 billion US dollars of overseas debt restructuring.

According to the Securities Times app, during October 29 in the morning, Sino-Ocean Group announced plans to carry out related transactions for restructuring, covering existing debt instruments including syndicated loans, bilateral loans, and notes, with a total outstanding principal of approximately 5.636 billion US dollars.

It is understood that the restructuring involves the distribution of restructuring consideration to eligible creditors, including new debts totaling 2.2 billion US dollars (including new loans and new notes), and mandatory convertible bonds and/or new perpetual securities, the total principal of which is equal to the total amount of the restructuring debt of all eligible creditors minus the principal of the new debt, i.e., the total of mandatory convertible bonds and perpetual equity. The new debt will be secured by Sino-Ocean Group's 0.6056 billion shares of Sino-Ocean Serv, accounting for 63.82% of Sino-Ocean Serv's current total share capital.

After the effective date of the restructuring is implemented, the company will issue mandatory convertible bonds and perpetual equity for the total amount of mandatory convertible bonds. According to the distribution ratio of Groups A to D and the individual choices of creditors within each group, the bonds will be distributed within different groups of creditors. The initial issuance amount is estimated to be approximately $4.018 billion, with a maximum conversion of 7.397 billion shares. The mandatory convertible bonds do not bear interest and have a maturity date of 24 months from the initial issuance date. The minimum conversion price of the mandatory convertible bonds in Groups A to D ranges from 1.46 to 11.14 yuan, which is a premium of approximately 3.56 to 33.81 times the closing price of 0.32 yuan on October 28th.

The company will seek special authorization from shareholders for the distribution and issuance of mandatory convertible bonds for conversion of shares at the shareholders' special general meeting, and will apply for the listing and trading of mandatory convertible bonds on the new exchange.

Against the backdrop of deep adjustments in the real estate industry and frequent debt defaults, distressed real estate companies are actively trying to help themselves, with 'debt restructuring' becoming an important means for real estate companies to deal with debts and relieve immediate pressure. According to publicly available information, incomplete statistics show that more than 50 real estate companies have initiated debt restructuring, with many distressed companies having made significant progress.

In recent years, many real estate companies have significantly strengthened their balance sheets by restructuring debts, thereby gaining 'breathing space.' For enterprises that have successfully restructured debts, short-term debt repayment pressure will be significantly reduced. Domestic debts generally will be extended, partly through debt-for-equity swaps for overseas debts, while another part can be repaid in installments over 3-8 years later. The plan of Sino-Ocean Group is also following suit; after issuing $2.2 billion in bonds, the group will redeem 15% over 5 years, another 15% after 6 years, 35% after 7 years, and the remaining 35% after 8 years.

At the same time, following the successful completion of overseas debt restructuring like Sunac, which revealed a comprehensive plan involving mandatory convertible bonds with a total debt of approximately $2.75 billion last September, China Aoyuan completed a $6.1 billion overseas debt restructuring in the first half of this year, involving 4 new debt instruments totaling $2.3 billion, $0.143 billion in mandatory convertible bonds, and $1.6 billion in perpetual bonds.

It is reported that following substantial deleveraging through its overseas debt restructuring, the performance of China Aoyuan has also been positively impacted. Upon the issuance of mandatory convertible bonds and perpetual bonds, they are accounted for as 'equity' for China Aoyuan. Together with the debt-for-equity swaps in the plan, after the completion of the restructuring plan, its debt-to-equity ratio has significantly improved, enabling the company to operate with reduced financial burden.

In terms of market recognition, taking Sunac as an example, since November 20th of last year when Sunac announced that all conditions for overseas debt restructuring had been satisfied and that the restructuring was effective, the first trading day of the effective date of the overseas debt restructuring, Sunac opened with a significant increase, rising by over 25% at one point during the trading day. More recently, China Aoyuan, which completed overseas debt restructuring in March this year, also saw a significant increase on the effective date, and in September gained recognition from Middle Eastern capital, experiencing a small rally. Additionally, after announcing significant progress in overseas debt restructuring on September 28th, Greentown Group saw its stock price nearly double in early October, with an increase of over 162% in 5 trading days.

It is worth noting that the major shareholder China Life Insurance (02628) holding approximately 29.59% of Sino-Ocean Group's shares, in addition to converting into new notes, may also receive several mandatory convertible bonds issued in the restructuring. Furthermore, if the restructuring plan can be finalized by the end of 2024, Sino-Ocean Group's total debt, including unredeemed principal, accrued and unpaid, and default interest, is estimated to be 6.218 billion yuan.

Fundamentally, the market undoubtedly pins its hopes on Sino-Ocean Group to alleviate its current liquidity pressure and bring a sustainable capital structure after the completion of the restructuring, seizing a chance of 'survival of the fittest'. As the real estate market warms up significantly, Sino-Ocean Group has taken a crucial step in debt restructuring, with the debt-for-equity path already showing a glimmer of light.

However, the success of the restructuring does not mean that the company truly 'rises from the dead'. The core of a successfully restructured troubled company is to restore and enhance its own operation and 'hematopoietic' capabilities. The debt repayment pressure still objectively exists, and ensuring sustainable long-term operation and 'survival' is the key to solving the problem.

The industry is experiencing a warm breeze with 'policy floor' support.

Looking at the development of the real estate industry, before 2016, benefiting from policies and continuous price increases, industry demand maintained double-digit growth rates. However, starting in 2017, the industry entered a slow development period lasting 5 years, with growth rates continuously slowing down. The Evergrande default event intensified industry restructuring. In 2022, industry defaults were frequent, formally entering a recession period, entering a negative growth era, and has been in continuous decline for three consecutive years.

While real estate companies are actively rescuing themselves, regulatory authorities are constantly releasing bullish signals to support real estate financing. On November 17, 2023, the People's Bank of China and two other ministries jointly held a forum for financial institutions, explicitly requiring that 'financial institutions should treat different ownership real estate enterprises equally to meet their reasonable financing needs, and not hesitate to provide loans, stop loans, or cut off loans to normally operated real estate companies'. Subsequently, many banks including Bank of China, Agricultural Bank of China, China Construction Bank, and Industrial and Commercial Bank of China have also successively held forums with real estate companies, expressing their commitment to expedite the resolution of real estate companies' reasonable demands and improve the financing environment.

Recently, the Central Political Bureau meeting on September 26 proposed to promote the stabilization of the real estate market. Subsequently, a series of policies were issued one after another, with relatively positive market feedback. The volume of primary housing viewings, visits, and signings has significantly increased, and the volume of second-hand property transactions continues to rise.

On October 17, the State Council Information Office held a press conference with the Ministry of Housing and Urban-Rural Development and four other ministries in attendance, introducing the situation related to promoting the stable and healthy development of the real estate market. At the conference, Minister of Housing and Urban-Rural Development Ni Hong stated that after three years of continuous adjustment, China's real estate market has started building a foundation, predicting that the data for October will be positive and optimistic.

It can be seen that Sino-Ocean Group's decision to advance debt restructuring at this time is also influenced to a certain extent by the warming market environment and the boost in confidence: Since September, under a series of policies, the performance of hot city markets has been active, investor confidence has rebounded, and Sino-Ocean's stock price has also surged at one point, followed by some correction.

According to the research report from Huatai Securities' macro team on October 27th, the transaction area of new homes in first-tier cities increased by 9.5% year-on-year last week. Specifically, in first-tier cities, Beijing/Shenzhen/Guangzhou saw an increase in the transaction area of new homes by 10.7%/73.5%/10.2% respectively. In addition, the transaction area of second-hand homes in first and second-tier cities increased by 84.8%/3% year-on-year. Specifically, in first-tier cities, Beijing/Shenzhen saw a significant increase in the transaction area of second-hand homes by 63%/121.5%.

However, more noteworthy is the data showing that in the third quarter, public funds and Northbound funds representing foreign preferences have begun to increase their real estate holdings. A report from Huatai Securities' real estate team shows that in Q3 2024, the proportion of real estate holdings by public funds and Northbound funds both increased, with the former's holding market value increasing by 60% on a monthly basis, and the latter's holding market value rising by 31% on a monthly basis. The holding proportion increased by 0.25% and 0.07% respectively.

A research report from Huatai Securities shows that since September, the combination of financial measures and political meetings has injected a stimulant into the real estate market, boosting confidence in stabilization. The coordinated efforts of various ministries are expected to accelerate market expectations recovery and stabilize fundamentals. It is bullish on high-quality real estate companies with ample inventory and strong replenishment capabilities in mainstream cities with stable operation.

According to the mid-2024 performance report released by Sino-Ocean Group in August, the company had a total of 160 available projects in the first half of 2024. In terms of regional distribution, more than 89% of the total sales agreements came from first and second-tier cities. Looking at land reserves, the company held 34.139 million square meters, with the equity portion of land reserves at 17.983 million square meters.

Looking at it comprehensively, with the positive implementation of policies, the real estate fundamentals have seen marginal improvement. As market confidence recovers, the return of institutional funds indicates that long-term funds are indeed flowing back into the real estate sector.

Looking ahead, recent new policies such as government inventory purchases and state-owned enterprises exchanging old homes for new ones have started to take effect. With further policy dissemination and implementation of supporting funds, it is expected to play a positive role in clearing inventory and stabilizing the market, while also helping accelerate the stabilization of the real estate market. Sino-Ocean Group is seizing this opportunity to alleviate the company's liquidity crisis, address the urgent debt pressure, which is undoubtedly a good timing. As for whether the "comeback battle" will succeed, only time will tell.