China halts key debt-to-equity restructuring tool for ailing developers, Bloomberg says

China has rejected the registration of some mandatory convertible bonds that helped several major property firms, including Country Garden (02007), avert liquidation proceedings, according to a Bloomberg report.

These debt-to-equity instruments were a crucial component of restructuring negotiations between developers and offshore investors, the report said, citing sources. 

They allow cash-stressed developers to convert debts into securities that could later be turned into equities to lower debt burdens, it said. 

Country Garden had already issued part of a US$13 billion (HK$101.4 billion) offshore mandatory convertible bond package, but was informed a few weeks ago that the China Securities Regulatory Commission would not accept its registration for the instrument, it said.

The developer is classified as a discredited entity due to factors such as debt defaults and regulatory violations and therefore failed to meet requirements, according to the report.

Sino-Ocean Group (3377), which is exploring the issuance of mandatory convertible bonds as part of bilateral restructuring talks with select private lenders, has already been informed that the CSRC will not approve the filing, it said.

It remains unclear whether the rejection is a pause in the procedure or a ban on the tool, the report added.

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