ZhengTong Auto seeks late-day deferral of loan amort, citing refi deal suspension due to COVID-19

20 July 2020

China ZhengTong Auto Services has requested a late-day deferral of today’s USD 95m amortization payment on a USD 266m outstanding syndicated loan, stating that a planned refinancing facility needed to be suspended because of the re-emergence of COVID-19 in Hong Kong, said two sources familiar with the matter.


The Hong Kong-listed luxury-car dealer made the request in a 16 July letter to lenders of the originally USD 380m three-year facility seeking consent to pay the third instalment due today at the same time it needs to make the final, 19 January 2021 payment, the sources said. Lenders were asked to respond by today (20 July) and the deferment requires unanimous consent, said one of the sources.


Under the original facility agreement, the unsecured loan closed in January 2018 was to be repaid in four semi-annual, unequal, instalments of 10%, 20%, 25% and 45%, the source said. The first two amortization payments and interest payments were made on time, said the source.


The company stated in the letter that although its planned offshore refinancing process was initially running smoothly and was almost in place, it had to be suspended due to the third wave of COVID-19 in Hong Kong, said the sources.


The coronavirus outbreak re-emerged in Hong Kong in early July after largely being under control in the city since April.


Debtwire reported on 10 June that ZhengTong was seeking an up-to USD 300m unsecured amortizing term loan led by Cinda International Asset Management Ltd  as global coordinator to refinance the due-January 2021 facility. The refinancing loan, comprising a USD 100m base size and a USD 200m greenshoe option, offered a top-level all-in of Libor+ 499bps via a margin of L+ 400bps.


In its letter, ZhengTong stated it has received a CNY 2.5bn new credit line, including an CNY 800m working-capital loan, from different financial institutions in 1H20, both the sources said. The company also stated its onshore relationship banks have “given support to extend debts,” said the sources.


The company estimates that the COVID-19 outbreak since December, a second wave in Beijing and the recent flooding in Southern China have impacted around 82% of its dealerships, which account for 88.5% of the group’s auto revenue, according to the sources.


The 2018 loan is guaranteed by offshore holding vehicles Wealth Fame Holdings Ltd and Rising Wave Development Ltd, similar to the planned refinancing facility, as reported.


Morgan Stanley was the global coordinator and mandated lead arranger bookrunner of the due-2021 facility, while Bank of Taiwan Co Ltd and Yuanta Commercial Bank were MLABs, according to Debtwire Par data. Seventeen other banks also participated in the deal, which pays a top-level all-in of L+ 359bps via a margin of Libor+ 315bps.


Moody's on 12 May downgraded ZhengTong and its senior unsecured debt ratings to B3 from B2, with outlook remaining negative. The ratings agency expects ZhengTong's auto sales and revenue to further decline in 2020 following an 8.3% fall in new-car sales in 2019, considering the COVID-19 outbreak and weakened demand outlook.


ZhengTong’s wholly owned Wuhan ZhengTong United Industrial Investment Group Co Ltd posted an unaudited operating revenue of CNY 3.13bn for 1Q20, a 64% drop from 1Q19.


ZhengTong stated on 16 July that it signed an agreement to raise net proceeds of around HKD 263.35m (USD 33.6m) through a share placement for general working capital. The company announced on 14 June that Koh Tee Choong stepped down as CEO due to health issues, and was replaced by Wang Kunpeng.


by Carol Zhong