After failing to consummate planned divestments of a pair of Hangzhou properties, SGX-listed EC World REIT says it is now in talks with both local and foreign lenders for a further repayment extension on $114 million in debt due on 31 December, as it awaits financial support from its sponsor.
The trust’s manager told the local bourse on 26 December that its lenders are in the process of obtaining internal approval for a proposed debt repayment plan under which its sponsor, Shanghai-based industrial conglomerate Forchn Holdings Group, will be shouldering “a portion” of the loan due 31 December and the remaining sum will be repaid within the first quarter of 2023.
“In the event that the manager and the lenders are unable to agree on a debt repayment plan by 31 December 2022, EC World REIT would be in breach of its mandatory repayment obligations, triggering an event of default under the existing offshore bank loans and existing onshore bank loans,” the manager of EC World REIT said in its declaration to the bourse.
EC World REIT is scheduled to repay 25 percent of its overall offshore and onshore debt of about $456 million by 31 December as a primary condition of a debt restructuring plan approved in June. That scheme fell short after Forchn Holdings failed to execute its planned purchase of two logistics assets in Hangzhou from the listed trust.
Default Risk Looms
EC World REIT, which owns seven logistics facilities in Hangzhou and one asset in Wuhan worth a combined RMB 8.12 billion, said the worsening COVID-19 situation in mainland China has caused delays in completing its divestment of two logistics assets in Hangzhou City to Forchn, which would have raised a combined RMB 2.03 billion ($290 million) and allowed for repayment of its obligations.
In October, two wholly-owned subsidiaries of Forchn agreed to acquire the first phase of the Bei Gang Logistics complex in Chongxian New City, north of Hangzhou for RMB 1.2 billion, as well as the neighbouring Chongxian Port Logistics facility for RMB 820 million.
Proceeds of the sale could have pared down EC World REIT’s total debt by at least 25 percent, however, Forchn failed to secure financing for the acquisition.
Under the restructuring plan, repayment of the trust’s nearly $310 million in offshore debt and onshore loans worth RMB 1.02 billion (now $146 million) had been extended by 10 months to April 2023, on the condition that a quarter of the outstanding debt be repaid before the end of this year.
Failure to extend its debt repayment plan by year-end would put the trust into default, which would then trigger mandatory repayment of its entire offshore debt and eventually trigger cross defaults of its onshore obligations as well as on revolving loan facilities totalling around S$98 million.
In its latest announcement, the trust manager said it is expecting “an outcome” on the proposed extension of its $114 million in maturing debt by 31 December.
Financial Future Uncertain
Following the news of its discussions with creditors, units in EC World REIT rose by 4.5 percent to S$0.46 apiece on Tuesday after closing on Friday at S$0.44. However, the REIT’s equity units are still down 40 percent from their S$0.77 level at the start of 2022.
EC World’s struggles to meet its financial obligations fulfill analyst predictions from earlier this year which cast doubt on the REIT’s access to credit, as well as on its ability to hit the targets laid out in the restructuring scheme.
“These onerous refinancing terms come despite repeated earlier management assurances that banks remain supportive,” RHB Group Research analyst Vijay Natarajan said in a June report.
Natarajan declined to comment on the latest restructuring proposal as RHB suspended its coverage of the REIT earlier this month, citing uncertainties surrounding loan refinancing and the trust’s proposed divestment, as well as difficulties in assessing the financial health of its sponsor.