Deloitte China Assists Multinational Bank Creditors to Recover the Restructuring Payments Offshore through the Successful Implementation of the Restructuring Plan of a Leading Chinese Copper Refinery

Reference is made to the article published by Deloitte on 4 May 2023 titled "Deloitte China Advises Offshore Lenders from Multiple Countries and Regions in a Successful Cross-Border Debt Restructuring of a Leading Chinese Copper Refinery", Deloitte China's Turnaround and Restructuring (T&R) acted as financial advisor to a group of more than 20 international financiers from 15 countries and regions ("Offshore Lenders") and advised on the cross-border restructuring of a large private copper refinery ("Target Group") in People's Republic of China ("PRC").

A judicial restructuring process in the PRC ("JR"), which was supported by the Offshore Lenders, was approved by the local court in January 2022 being used to implement a restructuring of the Target Group. Following the orderly implementation of the JR plan, Offshore Lenders have now received all of their restructuring payments in the form of cash offshore and successfully exited their original loans. The court has declared the successful conclusion of the implementation of the JR plan in April 2024.

Deloitte T&R team have played a pivotal role in delivering this complex cross-border debt restructuring:

Maintain open dialogue and establish the restructuring principles. We have proactively communicated with the local court and conveyed the Offshore Lenders' restructuring principles to ensure a fair and orderly restructuring process to be carried out. Offshore Lenders also recommended the qualified and experienced candidates for the role of JR administrator ("JRA") to local court. The local court has upheld an open mind and respected different opinions. In the end, Deloitte team have convinced the local court to adopt a creditor-participated elective mechanism (instead of the more frequently adopted lottery selection) to select and appoint the JRA. This set the stage for a smooth and transparent process.

Bridging the gaps between onshore and offshore creditors to reach a consensual restructuring. Throughout the entire restructuring process, Deloitte T&R team have demonstrated their expertise and professionalism in leading and collaborating with both onshore and offshore creditors to drive a consensually agreed JR plan. The JR plan was proposed by a state-owned investor and involved a sale of the business, a debt for equity swap and a debt compromise for all the creditors. The JR plan was approved by the local court in December 2022.

Addressing the issues around debt-to-equity conversion and cross-border payment through creative solution. Deloitte T&R team have worked with the client's legal advisor and foreign exchange experts to formulate a creative transaction structure for a cash out mechanism of the debt-to-equity portion and a cross-border payment mechanism. Deloitte team persistently negotiated with the JRA and the JR investor to ensure the outcome benefited all offshore creditors. The local court, State Administration of Foreign Exchange (SAFE) and other government departments were also an important part of the JR process by providing guidance for the proposed cross-border payment plan. The smooth implementation paves the way for Offshore Lenders to recover and receive all restructuring related funds in the form of cash overseas. The creative transaction structure and cross-border payment plan have addressed the common issues faced by Offshore Lenders' involved in PRC restructurings to avoid the need of holding equity instruments and to repatriate restructuring payment proceeds from onshore to offshore.

Through this process the Target Group has right sized its capital structure, brought in the stated-owned industrial investor and continued its business operations. This has maintained social stability and achieved a win-win situation for the Target Group, the JR investor and all the creditors.

This deal represents a precedent case under the judicial restructuring process in the PRC which allows repatriating the restructuring funds overseas to pay offshore creditors and sets a precedent roadmap for onshore and offshore creditors looking to restructure debts in the PRC.

All offshore creditors, local court, and onshore financial creditors complimented Deloitte T&R's expertise and professionalism in leading and coordinating the complex restructuring and for the persistence and work ethic, and expressed their gratitude on the significant efforts of Deloitte T&R team for bridging the cultural differences, enhancing mutual trust among onshore and offshore creditors, and promoting a successful conclusion of the JR.

This deal was named one of the "Deals of the Year 2022" by China Business Law Journal and received "2022 National Bankruptcy Classic Cases (Nomination Award)".

Related article: Deloitte China Advises Offshore Lenders from Multiple Countries and Regions in a Successful Cross-Border Debt Restructuring of a Leading Chinese Copper Refinery, 4 May 2023

For more information on Deloitte China’s restructuring services, please contact Deloitte China Turnaround & Restructuring:

Engagement Partner: Una Ge
Contact email: uge@deloitte.com.hk