Cash-strapped Chinese builders Logan Group and KWG Group Holdings are close to signing a private loan to refinance a HK$10.2 billion (US$1.3 billion) facility that backed the development of luxury property The Corniche in Hong Kong, according to people familiar with the matter.
The borrowing, arranged by JPMorgan Chase, is likely to be signed with a group of investors and bondholders as early as this week, according to sources who asked not to be named. Dignari Capital Partners (HK), alternative investment management firm Davidson Kempner Capital Management, Singapore-based private equity firm RRJ Capital, American investment manager Pacific Investment Management and Deutsche Bank AG are among the largest lenders in the loan, according to the sources. Logan and KWG had informed creditors verbally and by email that they aimed to complete the refinancing on July 29, but there may have been a slight delay for technical procedures, according to sources close to the developers.
The refinancing should take place before the maturity date of August 25, the sources said. Investors are targeting a 13 per cent annualised yield for the new private deal, which has a tenor of 30 months and two six-month extension options, the people added. The three-year debt is a HK$10.
2 billion mortgage held by a group of banks including HSBC, Standard Chartered, and Industrial and Commercial Bank of China (Asia) to finance the project construction in 2021. The facility has around HK$8.5 billion in outstanding principal and interest, the source said.
Meanwhile, alternative investment manager Ares Management made a proposal in April to some banks to buy out the original loan backing The Corniche, a luxury development in Ap Lei Chau, at a 5 per cent discount, according to the source. The project is a joint venture of Logan and KWG. The two deals are competing with each other, according to another source involved in the matter.
“Some banks are impatient with the developers because the residential project itself has not sold well and they don’t want this loan to default,” the source said. “The discount of 5 per cent is manageable because it will only eat into the interest that banks receive and not the principal.” The project began sales in early 2023 and has sold about 31 out of 295 units as of end July, according to a first-hand residential property website.
Ares declined to comment. Logan and KWG did not respond to requests for comment. Logan said in January that it was counting on revenue from The Corniche to help pay its creditors, but amid a slump in Hong Kong’s property market, prices of units in the project have dropped by as much as 40 per cent.
03:28 Beauty in plain sight: why Hong Kong's public housing estates are worth a closer look Logan has more than 150 projects in progress across China. As of December 31, the outstanding principal of Logan’s US dollar senior notes and HK dollar-denominated equity-linked securities amounted to US$3.6 billion, and the aggregate unpaid relevant interest amounted to US$368 million, according to its 2023 annual report.
The Corniche loan is not included in the restructuring. Defaulting on the loan would mean creditors could seize the project, which in turn would put the company’s restructuring plan in jeopardy. The Corniche has been favoured by cash-rich mainland Chinese buyers after the Hong Kong government removed all property cooling measures in February, waiving the Buyer’s Stamp Duty (BSD) that targeted buyers who are not permanent residents.
Most buyers paid cash and some transactions were completed in as little as 16 days, according to The Corniche’s website. For example, the chairman of Springtak, a company focused on investment management, import and export trade, construction and decoration, Jiang Zhipeng, who is also a member of the National Committee of the Chinese People’s Political Consultative Conference, bought a 2,310 sq ft, four-bedroom flat for HK$64.7 million, or HK$28,000 per square foot, according to local media.
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