Hidili Industry gains U.S. court recognition of foreign proceedings

By Sarah Lizee

Olympia, Wash., July 12 – China’s Hidili Industry International Development Ltd. gained recognition from the U.S. Bankruptcy Court for the Southern District of New York of its proceedings in a Hong Kong court, according to an order filed Tuesday.

On Oct. 30, 2015, the company told holders that it wouldn’t be able to pay the principal and interest due on its $400 million 8 5/8% senior notes due 2015. After that, the company engaged in discussions with some of the holders.

There is $182.75 million of the notes outstanding.

Three noteholders, Triada Capital Ltd., Barclays Bank plc and Haitong International Financial Products Ltd., formed a steering committee to facilitate discussions regarding a restructuring of the notes.

However, on Jan. 19, 2016, Roche & Owen Associates (PTE) Ltd., another holder of the notes, presented a wind-up petition against Hidili in the Hong Kong court for the outstanding principal and interest due to the noteholders.

The court adjourned the hearing on the wind-up petition, and to date, no substantive argument on the petition in the proceeding has occurred.

On Nov. 1, 2021, the steering committee and Hidili agreed on the terms of a restructuring support agreement through a scheme of arrangement. The longstop date under the RSA is Sept. 30.

As of April 28, holders of about $101.81 million, or about 55.7% of the outstanding amount of the notes, had signed the RSA.

RSA terms

Participating scheme creditors will be entitled to consideration comprised of a pro rata share of ordinary shares issued by Hidili, a cash payment equal to 3/16 of the total accrued interest amount, and dollar-denominated zero-coupon bonds to be issued by Hidili in a principal amount of 13/16 of the total accrued interest amount.

The scheme shares will, in aggregate, constitute 46.1% of the entire issued shares in Hidili on a fully diluted basis as of the restructuring effective date and will be listed and tradable on the Hong Kong Stock Exchange.

Participants may elect to participate in the share placement program under a deed entered into by, among others, Hidili, the subsidiary guarantors, and a special purpose vehicle.

These participants’ scheme shares will be issued directly to a special purpose vehicle incorporated in the British Virgin Islands. Hidili will be required to use its best efforts to sell the shares, subject to minimum sales threshold that must be met at specific milestone dates, and certain minimum prices depending on the method by which the shares are sold.

The proceeds will be deposited in a bank account to be distributed to the participants on regular payment dates. Hidili will also issue new dollar senior secured notes due 2025 equal to the number of shares held by the SPV for the benefit of the participants as of the restructuring effective date multiplied by the dollar equivalent of HK$0.6310.

Hidili has agreed to pay a cash fee to those who sign the RSA equal to their pro rata share of 1% of the claim amount on the default date. The company will also pay the three steering committee members their pro rata shares of the work fee, which is a cash fee equal to 0.25% of the claim amount on the default date.

Hidili will also pay a consent fee, which is a cash fee equal to 0.25% of the claim amount on the default date, to holders who voted in favor of the scheme.

Scheme voting results

Of the 141 noteholders that submitted account holder letters, 126 noteholders, or 99.2% of the scheme creditors that voted on the scheme, holding $125.21 million in principal amount, cast valid votes at the scheme meeting. And, 125 of those 126 noteholders, or 99.2% of the scheme creditors that voted on the scheme, holding $124.81 million in principal amount, or 99.68% by value of the outstanding principal amount of the notes that voted on the scheme, voted to accept the scheme.

Onshore restructuring

The scheme and restructuring are part of a broader financial restructuring that includes an onshore restructuring of the liabilities of some members of the group to banks based in China.

The onshore restructuring will be implemented in a process that is separate from the scheme.

Following the initial discussion with the Chinese banks, those banks formed a creditors’ committee and engaged with Hidili in extensive, good faith negotiations.

On April 21, 2020, those negotiations culminated in the entry into a framework agreement regarding an onshore restructuring.

Key terms include the issuance by Hidili of newly issued preferred shares to the banks in return for the discharge of conversion interest of about RMB 1.05 billion; and issuance by Hidili to individual operating creditors of Hidili located in China to the extent such onshore operating creditors agree with the debt-for-equity swap restructuring proposal, of 679,780,317 newly issued ordinary shares in discharge of the onshore operating creditors’ debts.

Separately, a post syndication agreement was signed between Hidili and the onshore creditor committee, which took effect on April 20, 2020.

The parties agreed that the outstanding principal of about RMB 5.87 billion together with the outstanding interest of roughly RMB 616.99 million owed to the banks will be extended for a period of five years to be repaid by Feb. 4, 2025.

As noted above, the scheme only affects the 8 5/8% notes, and therefore the onshore restructuring will not be implemented through the scheme. However, closing the onshore restructuring is a condition precedent to the scheme and notes restructuring.

Hidili and its subsidiaries estimate total assets at around $1.87 billion and total debt at $1.73 billion.

Based in Panzhihua, China, Hidili is a coal and coke company. The company filed its Chapter 15 case on June 10 under case number 22-10736.

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