Global Restructuring Review recently hosted the second edition of GRR Live: Restructuring in Asia. The full-day event had a sector specific panel session that explored the future of the Chinese real estate market where Jocelyn Chi, Managing Director in Kroll's Restructuring practice, was invited to speak on the shifting dynamics.
The discussion shed light on significant attitude changes among active professionals as they grapple to find the right solutions in an environment that must contend with relentless macroeconomic challenges, including poor business performance, high interest rates and pricing dislocation across distressed assets.
Jocelyn outlined the five key takeaways:
1. Embracing Pragmatism Over Perfection
The market is displaying a clear shift towards pragmatism, where stakeholders are now more inclined to get deals done, rather than seek the elusive "perfect" deal. The industry acknowledges that the concept of a perfect deal no longer exists, as creditors and debtors alike have become realistic about the current economic realities. This approach has led to a focus on timely execution, with stakeholders recognizing the urgency to move past financial issues so they can focus on what is important: business recovery.
2. Transparent Information Sharing and Creditor Pragmatism
Transparency and timely information-sharing are critical for Chinese real estate stakeholders. With an urgency to reach agreements, stakeholders have recognized the need for increased cooperation and disclosure. This includes debtors providing continuous reporting after the signing of agreements to help prevent delays and facilitate collaborative solutions.
It is no secret that a transparent, pragmatic approach enables collaborative solutions that protect creditor interests while allowing businesses to recover in turbulent conditions. Encouraging upfront disclosure can help stakeholders better understand issues and develop effective solutions. However, despite a more positive sentiment towards this, the flow of information can't always be guaranteed, even if both parties understand its importance.
3. Interim Solutions and Long-term Strategies
As the market navigates an ever-evolving landscape, stakeholders are exploring creative options ranging from interim solutions to long-term strategies. The need to act quickly to potentially avoid missing the bottom of the market has also become paramount, as creditors and debtors recognize the importance of securing deals before the landscape shifts.
This mindset has led stakeholders to become more willing to take a short-term hit to move forward and focus on the long-term viability of the business. This again allows debtors to resolve their financial challenges quickly, enabling them to devote their attention to the successful turnaround of their business and secure a broader range of benefits for all stakeholders over the longer term.
4. Creditor Cooperation and Government Perception
Being realistic is the underlying sentiment from the panel session. Being open, willing to communicate and acknowledging debt obligations will go a long way, especially in the eyes of the government and creditors. When relief-driven policies are being developed, those that have done all they can and acted in the wider interests of all stakeholders will fare well. Demonstrating a willingness to compromise and find mutually beneficial solutions is crucial, as it shows good faith and a collaborative spirit that can aid in securing favorable outcomes. This doesn't always happen, and the costs of not doing so can be high.
5. Balancing Interests and Expediting Processes
The ongoing higher-interest rate environment that shows no signs of easing has led to a delicate balance between securing a good deal and simply getting a deal done. The longer the process takes, the more interest must be paid. The good news is that creditors are willing to listen and consider flexible solutions, if the proposed plan is realistic and fair.
There have been a few winding-up proceedings, notably in June with an unprecedented four cases assigned to the Hong Kong courts for Chinese developers. Viewed in their proper context, these may not always be about winding up, but instead applying pressure to expedite a solution, rather than indicate a company's demise.
The evolving restructuring landscape presents both challenges and opportunities for stakeholders. By embracing pragmatism, fostering transparent communication and striking a balance between immediate and long-term interests, market participants can navigate these turbulent times and find sustainable solutions that benefit all parties involved.
