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On the evening of January 6, Jinke Properties (000656.SZ) announced a significant restructuring agreement, successfully signing an investment pact with 16 financial investors, collectively raising approximately 1.068 billion yuanThis capital influx, alongside previous commitments from seven other financial investors, allowed Jinke to reach its target funding quota for the restructuring process.

The restructuring is spearheaded by an industrial investment consortium comprising Shanghai Pinqi Management Consulting Co., Ltdand Beijing Tianjiao Green Garden Real Estate Development Co., LtdThis coalition was responsible for determining industry and financial investors for Jinke’s revival plan.

By January 8, all engaged financial investors had formally signed the restructuring investment agreementsOn the industrial front, Jinke, along with its restructuring management team, had also solidified investment agreements with Changcheng Asset Management Co., Ltd

and Sichuan Development Securities Investment Fund Management Co., Ltd.

The restructuring process for Jinke Properties kicked off in April 2024. According to the outlined steps, once all investments and funding commitments are confirmed, the next phase will involve a voting process among creditorsIf creditors approve the plan, it will be presented to the court for judicial endorsement, leading to the execution of the restructuring plan.

Jinke Properties has marked its place in history as the first major real estate enterprise in China to enter bankruptcy restructuring, which underscores the critical situation many firms within the industry are facing.

A source involved in Jinke's restructuring disclosed that post-restructuring, the company aims to pivot its primary operations toward revitalizing and managing non-performing assets with the assistance of industrial investors.

In April 2024, the Chongqing Fifth Intermediate People's Court formally accepted the restructuring applications for Jinke Properties and its subsidiary, Chongqing Jinke Real Estate Development Co., Ltd

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Notably, the court appointed Lixin Accounting Firm and King & Wood Mallesons, both highly regarded entities, to act as the restructuring managers.

Following court approval, efforts began in May 2024 to assess debts, evaluate assets, and devise the restructuring draftFurthermore, a public call was made to attract potential industrial and financial investorsBy November 2024, Shanghai Pinqi and Beijing Tianjiao Green emerged victorious in the selection process to become Jinke's industrial investors.

According to the restructuring plan, Jinke intends to raise a total of 2.628 billion yuan with investors acquiring a staggering 3 billion shares of the companySpecifically, industrial investors are set to subscribe to 1.2 billion shares at a price of 0.63 yuan per share, totaling an investment of 756 million yuanMeanwhile, financial investors plan to purchase 1.8 billion shares at 1.04 yuan each, amounting to an investment of 1.872 billion yuan.

On December 25, 2024, the Sichuan Development Fund made a notable entry as an investor in Jinke's restructuring

Under the investment agreement, the Sichuan fund is set to allocate 100 million yuan as an industrial investor for 160 million shares, alongside an additional 198 million yuan as a financial investor to acquire 190 million shares.

Just days later, on December 27, another infusion of capital arrived as five financial investors, including China Emerging Asset Management Co., Ltdand Chongqing International Trust Co., Ltd., committed 239 million yuan collectively, obtaining 230 million shares of Jinke Properties.

Moving into January 2025, Changcheng Asset Management also joined the ranks of investors, planning to invest 29.61 million yuan as an industrial investor for 47 million shares, and 367 million yuan as a financial investor to acquire 353 million shares.

By January 6, 2025, Jinke secured investments worth approximately 1.068 billion yuan from an additional 15 financial investors, including Oak Tree Capital and Suzhou State-owned Assets Management Group

Collectively, these investors agreed to purchase over 1.027 billion shares, completing the necessary financial backing for the restructuring processNotably, among these investors, four are individuals.

As of January 8, 2025, the total commitment from Jinke's financial investors amounted to 1.872 billion yuan, fulfilling the planned investment quotaHowever, regarding industrial investors like Changcheng and the Sichuan Fund, there remains a gap of 626 million yuan in their 1.3 billion yuan investment commitment.

A participant involved in the restructuring noted that Jinke's criteria for industrial investors are more stringent than those for financial backersApart from the requisite investment capability, industrial investors are expected to possess the expertise to aid Jinke’s operational recovery, particularly in managing troublesome assetsChangcheng Asset Management and the Sichuan Fund meet these expectations due to their proficiency in handling non-performing assets and financial investments.

The ultimate control of Jinke's industrial investor, Shanghai Pinqi, resides with Beijing Pinqi Management Consulting Co., Ltd

Various stakeholders, including Zhang Yong, Shan Dawei, and Feng Lun, each hold substantial ownership stakes in the consulting firm, contributing their wealth of knowledge and connections in the real estate sector.

Zhang Yong chairs Xinyuan China, while Feng Lun previously led Wantong Group, with both figures bringing considerable experience to the tableAdditionally, Ma Weihua offers a wealth of resources in the financial arena.

Jinke's restructuring process encapsulates two pivotal steps: the induction of industrial and financial investors, followed by the settlement of debtsBeginning in late December 2024, the restructuring managers initiated discussions with creditors regarding debt repayment plans, a crucial element of Jinke's overall restructuring agenda.

A draft from December 20, 2024, outlines Jinke’s debt repayment hierarchy, prioritizing secured claims backed by assets

Remaining resources would cover bankruptcy costs, employee claims, tax obligations, and finally, general unsecured creditors, who might expect a recovery rate of only 3%.

The proposed debt repayment options include a share transfer mechanism and the establishment of a bankruptcy trust fundUnder the share transfer strategy, for every ten shares, an additional ten shares would be issued, amounting to a total issuance of 5.294 billion new sharesOut of this, 3 billion shares would go towards attracting new investors, while 2.294 billion shares would address debts.

Jinke's assets have been segmented into retained and divested assets, where the retained assets will serve as the operating foundation post-restructuringThe 20 subsidiaries slated for divestiture will form a bankruptcy service trust aimed at fulfilling obligations to general creditors, valued at 1.744 billion yuan with an eight-year duration.

The specific repayment structure includes full cash payments to employee claimants, staggered tax payments scheduled over five years post-approval of the restructuring plan, and priority repayments derived from the liquidation of secured assets, with any shortfalls classified as unsecured debts

Currency settlements will also incorporate alternative measures such as asset exchanges.

Common creditor settlements are divided based on principal amounts, with claims under 50,000 yuan being settled in full, while those exceeding that amount are settled by a mix of shares and trust fund equityIn this arrangement, for every 100 yuan in claims, creditors receive 2.53 shares, with the share price pegged at 6.46 yuan, while trust equity distributions would allocate 100 claims per 100 yuan.

A creditor of Jinke voiced concerns regarding the restructuring plan, indicating that trust and stock allocations are cumulative, meaning creditors could potentially reap both benefits simultaneouslyHowever, ongoing disputes attribute two primary areas of contention amongst creditorsA call for greater transparency has been directed toward the restructuring management.

One key issue pertains to the low repayment rate for general creditors, as per findings from Jinke’s bankruptcy review, net assets have plummeted by 92%, while liabilities surged by 66%, resulting in a recovery rate as low as 3%.

Moreover, there is an absence of a reserve debt scheme

Commentators among Jinke’s creditor base contend that while trust arrangements are intended for unsecured creditors, a significant number of assets that should theoretically facilitate repayments are categorized as retained assetsThe lack of such a reserve means that many unsecured creditors may face an uphill battle in reclaiming their funds.

A source close to the company argued that despite what appeared as reduced delivery potential for creditors, the total repayment, when including cash, shares, and trust benefits, does not indicate a stark shortfallThe rationale behind not instituting a reserve scheme is to bolster Jinke for a robust post-restructuring future.

Some perspectives have emerged suggesting that during preliminary discussions with creditors, the proposals were largely met with understanding and support, especially from larger stakeholdersThe objections primarily surfaced from smaller creditors, suggesting an evaluation of Jinke’s restructuring should take a long-term view rather than focusing solely on immediate returns.

With the industry facing significant adjustments, Jinke anticipates that its restructuring efforts will yield new business opportunities

The focus post-restructuring will center around leveraging the extensive resources of new stakeholders in finance and asset management to facilitate a robust recovery strategy.

Future endeavors will focus on navigating non-performing assets while achieving significant competitive advantages in the marketThrough enhanced cooperation with industrial investors such as the Chengdu Development Fund and Changcheng Asset, Jinke aims to chart a path towards renewed growth in the challenging real estate landscape.

Following the restructuring, the anticipated joint efforts will likely culminate in considerable synergy, marking a potential resurgence not just for Jinke, but also for the broader market grappling with similar challenges.

In conclusion, as Jinke Properties revives, the opportunities for cooperation and new market ventures become increasingly apparent, positioning itself to play a crucial role in the management of distressed assets, thus securing a promising future in a volatile industry landscape.