Poly Real Estate will acquire projects such as Guiyang Poly International Plaza after acquiring a 33.5% stake in Poly Guizhou.

On November 16, Poly Real Estate Group Co., Ltd. issued a supplementary announcement on the 33.5% equity stake in Poly Guizhou Real Estate Development Co., Ltd.

It is understood that before concluding the equity transfer agreement, the buyer Poly Guizhou Real Estate Group Co., Ltd., Guiyang Jintai and Guiyang Zhong Ra were the equity holders holding 66.5%, 27.917% and 5.583% of Poly Guizhou, respectively. Shareholders have been providing shareholder loans to Poly Guizhou for many years.

In 2017, Guiyang Jintai and Guiyang Zhong Ra signed a creditor's rights transfer agreement, Guiyang Jintai and Guiyang Zhong Ra respectively transferred shareholder loans to Guizhou Yonghezheng Trading Co., Ltd. (Guizhou Yonghe). In the event of a shareholder dispute, Guizhou Yonghe then applied to the Guiyang Intermediate people's Court for the repayment of the transferred shareholder loan.

The buyer applied for compulsory liquidation of Poly Guizhou to the Wudang District people's Court in January 2020, and the Wudang District people's Court subsequently approved the application and appointed a manager in this regard.

From May 2021 to August 2021, the buyer held many consultations with Guiyang Jintai, Guiyang Zhong Ra and Guizhou Yonghe on the debt settlement and restructuring of Poly Guizhou. On August 23, 2021, the two sides reached an agreement on debt restructuring.

Prior to this, on September 28, 2021, the buyer, Guiyang Jintai and Guiyang Zhong Ra signed an equity transfer agreement. Accordingly, the buyer agreed to acquire, and Guiyang Jintai and Guiyang Zhong Ra agreed to sell 27.92% and 5.58% of the shares in Poly Guizhou Real Estate Development Co., Ltd. (Poly Guizhou) respectively, totaling 33.5%. After the completion of the equity transfer, Poly Guizhou Real Estate Development Co., Ltd. will become a wholly-owned subsidiary of the buyer.

According to the equity transfer agreement, the buyer is not required to pay any consideration to Guiyang Jintai and Guiyang Zhong Ra for the equity transfer. The equity transfer forms part of the debt restructuring, according to which the claim against Poly Guizhou is settled at 82.5% of the total claim amount.

It is reported that the buyer's claim amount is about 1.919 billion yuan, which will be repaid by about 1.583 billion yuan according to debt restructuring, partly in cash and partly in kind (including equity transfer and loan repayment of about 482 million yuan by Guiyang Poly Real Estate Development Co., Ltd.).

Guizhou Yonghe is an ordinary creditor of Poly Guizhou, with a claim amount of about 79.47 million yuan and a settlement of about 65.5 million yuan. Poly Guizhou's other creditors include priority creditors and remaining ordinary creditors, whose claims are about 49.48 million yuan and 26.327 million yuan respectively. The amount claimed by the remaining ordinary creditors shall be paid off in cash at the rate of about 217 million yuan.

According to the announcement, Poly Guizhou has three wholly-owned subsidiaries (Guiyang Poly Real Estate Development Co., Ltd., Poly Guizhou Hot Spring Management Co., Ltd., and Poly Guizhou Hotel Management Co., Ltd.) and 49% stake in Poly Guizhou property Management Co., Ltd.

Accordingly, in respect of equity transfer, the buyer will acquire 100% equity in Guiyang Poly Real Estate Development Co., Ltd., the project company in Guiyang Poly International Plaza, 100% equity in Poly Guizhou Hot Spring Management Co., Ltd., the project company in Guiyang Poly International Hotel, Poly Guizhou Hotel Management Co., Ltd., and 49% equity in Poly Guizhou property Management Co., Ltd., The property management company provides property management services to properties in Guizhou Province.

According to the announcement, after the debt restructuring, Poly Guizhou has total assets of about 1.56 billion yuan, of which the book value of inventory, real estate properties and fixed assets has increased by about 197 million yuan according to the assessed value. According to debt restructuring, the amount claimed by ordinary creditors shall be repaid at 82.5% of the original amount (the amount of abandoned claims is about 376 million yuan). After the debt restructuring and prior to the outstanding payment of approximately $1.583 billion to the buyer, the main liabilities of Poly Guizhou under the debt restructuring are approximately $1.583 billion due to the buyer and approximately $8 million in expenses accrued and payable to other creditors. After debt restructuring, Guizhou Poly will have a net debt of about 30 million yuan, mainly from operating losses.

Poly Real Estate believes that debt restructuring (including equity transfer) is more beneficial to the company than compulsory liquidation, for the following reasons: the individual sale of Poly Guizhou assets by: (i) managers is disadvantageous to Poly Guizhou, and the bid price of the assets may be substantially discounted that; (ii) outstanding shareholder loans have been fully provisioned, and it is unlikely to recover more through the individual sale of Poly Guizhou assets; Financial position and assets held by; (iv) Poly Guizhou after (iii) debt restructuring the assets / projects held by Poly Guizhou are in line with the company's overall strategy for real estate development and investment; (v) reputation considerations. Despite its net losses and net liabilities, Poly Guizhou has been generating positive net cash flows for the two years ended December 31, 2020 and the six months ended June 30, 2021. The company has made a major investment in Poly Guizhou for a long time and is cautiously optimistic that Poly Guizhou will reverse its business situation in the medium term.