Deng Xiaoping had it about right: one country, two systems.
Four months ago foreign lenders to China's Asia Aluminum, the region's largest housing-frame maker, drove it into provisional liquidation, having rejected its deeply discounted offers to buy the debt back. A Hong Kong court last week agreed a sale to management for US$475m. Holders of $535m of payment-in-kind notes, who were lending to the offshore holding company, will get less than a cent in the dollar. Senior unsecured bondholders, owed $450m by the onshore operating company – where all the assets are – will get 20.
This is a sickener for both sets of lenders – especially the PIK holders, for whom rolled-up interest payments since a buy-out three years ago brought the total face value to about $730m. When the hedgies and foreign banks bought these high-yielding notes they would have recognised that mainland lenders, owed at least $350m in secured loans when Asia Al began to flounder, would prevail in any restructuring. And lo, the mainland banks were indeed made as good as whole.