(Jan 14): A major Chinese builder, which was a harbinger of the property crisis, may scrap a creditor-approved debt plan and end up in court to solve its lingering debt problems, highlighting challenges for distressed developers as the downturn enters its fifth year.

China Fortune Land Development Co, which defaulted in early 2021, is considering a new restructuring under the supervision of a Chinese court that would replace an earlier debt plan approved by creditors, said people familiar with the matter.

The move would add a new twist to the builder’s years-long restructuring efforts, which have seen it rely on unorthodox methods and private transactions to reduce its debt load.

The company, which develops residential properties and industrial parks, has again engaged China International Capital Corp as its financial adviser, the people said, asking not to be identified as the matter is private.

Court-supervised restructurings for property developers in China are rare, despite the slew of defaults by builders over recent years. One of the few builders to pursue such a plan is Jinke Properties Group Co, which expects its liabilities-to-assets ratio to drop from over 90% to around 30% under its court-supervised restructuring. Jinke’s plan could serve as a road map for China Fortune Land.

Such court-supervised restructurings generally require a procedure to place the company under bankruptcy administration and may include white knights to bring in new funds.

“Since China Fortune Land defaulted early, initial restructuring plans were overly optimistic,” said Yao Yu, founder of Shenzhen-based credit research company Ratingdog. “With the real estate downturn persisting and short-term recovery unlikely, significant debt reduction via court-supervised restructuring is now a pragmatic choice,” Yao added.

China Fortune Land declined to comment and CICC didn’t immediately reply to a request for comment.

Under a 190 billion yuan (RM116.66 billion) debt plan that was approved by creditors, the company proposed to pay 30% of its onshore bonds’ principal in multiple installments by the end of 2023. It didn’t achieve that goal and has compensated its bondholders in a piecemeal manner so far.

Last year, it privately proposed a plan to some creditors, giving them an option to transfer their debt to an unnamed state-owned firm. It is expected to reduce its borrowings by around 20 billion yuan after the completion of the plan.

The option came several months after it cut its public debt by about 10 billion yuan at a discount of around 10% by teaming up with a local buyer.

China’s property debt restructuring will remain bumpy, as the central government is not yet ready to inject new money into distressed developers, said Zerlina Zeng, head of Asian strategy at Creditsights Singapore LLC.

“Banks and bondholders are facing deep haircuts,” Zeng said. “We don’t expect the liquidity crunch to ease unless excess home inventories are addressed,” she added.

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