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Wednesday, 16 January 2019

Restructuring

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The high-yield bond rally for much of the year did not make Asian debt restructurings any easier, and Winsway Enterprises Holdings, since renamed E-Commodities Holdings, was the only one to complete a successful bond workout within the awards period.

Winsway, a coal supply business suffering from low commodity prices, needed to deal with US$309.31m of 8.5% offshore bonds maturing in June 2016. It had previously tendered for its dollar bonds at a discount in 2013, but the 2016 exercise was a long-term solution rather than a stop-gap. With coal prices languishing, it was clear that the debt burden was unsustainable and needed to be cut down to size if Winsway were to continue as a going concern.

The solution the company’s advisers put together balanced the interests of bondholders and shareholders, while also allowing Winsway some breathing space.

The company reached out to potential white knights over a six-month period, before the family of chairman Xingchun Wang and existing shareholder China Minmetals Group agreed to come up with cash for the restructuring. That meant that Wang and family were also able to remain as majority shareholders, giving investors confidence in the company’s long-term prospects.

Winsway raised around US$50m from a rights issue, which was underwritten by Wang’s family (73.3%) and a subsidiary of China Minmetals (26.7%). This funded a cash payout to bondholders, as well as a consent payment to those who signed the restructuring support agreement.

Faced with a probable recovery rate of 4.7%–10.4% if the company entered liquidation, creditors instead received a mixture of cash, shares and contingent value rights. Excluding the CVRs, that worked out to around a 15.4% recovery of face value. However, investors also stood to benefit from additional returns in cash or shares from the CVRs if the company’s profit exceeded US$100m in any year within five years from the completion of the restructuring.

Bondholders and shareholders gave overwhelming support to the proposal, and were rewarded as the company’s streamlined structure, coupled with a rebound in coal prices throughout 2016, helped it on the road to recovery.

Winsway’s share price tripled between the completion of the restructuring and the end of the review period in November.

The success of the deal and its clean execution were in stark contrast to several other Asian debt restructurings, especially in areas related to commodities, that have dragged on for years.

UBS was financial adviser to Winsway. Houlihan Lokey advised the steering committee of bondholders.

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