Chinese builder Yuzhou seeks debt restructuring recognition in US

Yuzhou Group Holdings filed for Chapter 15 bankruptcy on Thursday in New York, a move by the defaulted property developer to seek US court recognition for its offshore debt restructuring and ward off litigation.

The Shenzhen-based builder, which failed to pay US$2.9 billion of dollar notes with interest as of the end of 2023, is undergoing restructuring in Hong Kong and the Cayman Islands.

Its board was advised to “seek recognition by this court of the Hong Kong proceeding as a foreign main proceeding for the debtor”, according to a company filing with the court. Without US court recognition, “it may be possible that creditors of such indebtedness will commence proceedings in New York against the company even after the schemes are sanctioned”, it said.

Yuzhou joins a growing list Chinese developers, including Sunac China Holdings and China Aoyuan Group to use the Chapter 15 bankruptcy system to deal with offshore creditors or handle cross-border assets.

A Chapter 15 recognition proceeding is a legal step for the US court to formally recognise the effectiveness of the restructuring in foreign jurisdictions, according to an insight note by law firm Sidley Austin last year.

Companies do not necessarily need material US assets to seek such recognition, and often the only liabilities of Chapter 15 debtors are US-law governed bonds, the note said, in explaining the differences with the better-known Chapter 11 filings.

Yuzhou received court orders in both Hong Kong and Cayman Islands in August to hold votes on its offshore debt overhaul plan, according to a filing to the Hong Kong exchange on Wednesday. The so-called scheme meetings are set for September 12, when creditors will vote for the company’s plan, usually seen one of the last steps to get a restructuring procedure completed.

According to the company, it had total interest-bearing liabilities of about US$6.8 billion in the offshore market and 12.31 billion yuan (US$1.7 billion) in the onshore market as of December 31, 2022.

“The company believes that the successful implementation of its offshore debt restructuring would allow it to right-size its balance sheet and restore its capital structure to a healthy and sustainable level such that the group’s business would be able to continue as a going concern and thrive moving forward,” it said at the time.