Chinese private developers are facing a difficult road ahead as they attempt to restructure their debt and revive their fortunes. A shrinking land bank and sluggish property demand are likely to hamper their plans, according to five developers and restructuring advisers. This could necessitate a second round of debt restructuring eventually at some of the developers.
The crisis has drained developers’ liquidity, resulting in many defaults. More are expected to announce their offshore debt restructuring terms in the coming months, which will include longer maturity extensions, lower coupons, and converting some debt into equity.
The revival, however, seems to be uncertain as both the broader economy and the property sector are stumbling. Moreover, the private developers are staring at lower potential future revenues as they are unable to build on their land banks due to their precarious financial positions.
Creditors prefer to swap part of the debt into equity in such deals, but this means the company’s debt will not be lowered to a meaningful level to run a healthy future business. A higher equity base will also raise the risk of developers falling into negative equity.
Despite all the uncertainties and concerns, developers and creditors said they would like to close the restructuring chapter soon and move on. Only by completing a restructuring, they can talk to clients and banks and pretend things are back to normal.