Bond Update: KWG’s Offshore Debt Restructuring Plan

On 15 June 2026, KWG Group Holdings (stock code: 1813.HK) announced that it had entered into a restructuring support agreement (the “RSA”) with a group of initial participating creditors, drawn from the ad-hoc creditor group (the “AHG”), who together hold over 26.1% of the in-scope offshore debt. The plan deals only with the company’s offshore liabilities.

KWG defaulted on its onshore debt back in 2023, which triggered cross-defaults across its offshore dollar bonds. After nearly three years of negotiations – a notably long wait compared with most of its peers – this RSA is the first concrete framework the company has put on the table for resolving its offshore debt. The preliminary terms were first floated earlier this year, and the formal RSA was signed on 15 June.

The company intends to implement the restructuring through one or more schemes of arrangement in Hong Kong and/or the Cayman Islands. As a court-driven scheme rather than an exchange offer, it requires 75% approval by value and, once sanctioned, becomes binding on all in-scope creditors. KWG is now urging the remaining holders to accede to the RSA.

Creditors who join the RSA will receive a consent fee, paid in kind in the form of ALC Senior Bonds Tranche 1: an early consent fee of 0.2% of eligible principal for those acceding by 13 July 2026, or a base consent fee of 0.1% for those acceding by 27 July 2026. Because of the large amount of information contained in the term sheet, this article will only summarise the key terms, and some details cannot be fully covered.

(The following information is for reference only and the details are subject to the original announcement.)

The Restructuring Plan

The plan covers all of KWG’s in-scope offshore debt – nine senior bonds (about US$3,956 million), eleven other loan facilities (about US$497 million) and one syndicated bank loan (US$380 million) – for a total principal of approximately US$4,833 million. All accrued and unpaid interest is waived.

Creditors are offered two options for converting their claims and can freely allocate between them (see Table 1). Option 2 is the default: any claim that is not actively elected is allocated to Option 2. Option 1 is subject to a cap of US$1.38 billion, and if it is oversubscribed, the excess is reallocated to Option 2 (which has no cap).

Table 1: The two restructuring options

	Option 1	Option 2 (default option)
Consideration per US$100 of principal	US$29 of ALC Bonds + US$20 of MCB; the remaining ~US$51 is cancelled entirely	US$100 of MCB
Source: Company Announcements, iFAST Compilations Data as at 15 June 2026

Both options require creditors to accept a certain degree of loss. Under Option 1, only US$49 of every US$100 is converted into instruments (US$29 of ALC Bonds plus US$20 of MCB), while the remaining roughly US$51 is cancelled outright. Under Option 2, the full US$100 is converted into MCB – there is no principal write-off on paper, but the recovery then depends entirely on the share price.

The MCB (Mandatory Convertible Bond) is the common building block of both options (see Table 2). They are issued by KWG itself, carry no coupon and a two-year tenor, and convert into new KWG shares at HK$1.55 per share. Holders can convert voluntarily after the restructuring effective date (the “RED”), and any MCB still outstanding at maturity are mandatorily converted.

Table 2: Key terms of the MCB

Mandatory Convertible Bond (MCB)
Issuer	KWG Group Holdings
Tenor	2 years from the Restructuring Effective Date
Coupon	Nil
Conversion price	HK$1.55 per share
Conversion	Voluntary after the RED; any remaining balance is mandatorily converted at maturity
Expected issue size	~US$3,726 million if Option 1 is fully subscribed
Source: Company Announcements, iFAST Compilations Data as at 15 June 2026

The more distinctive instrument is the ALC Bonds, which are only available under Option 1 (see Table 3). These are zero-coupon bonds issued by a special purpose vehicle independent of the Group (the “Note SPV”), designed to give holders the economic benefit of a single Hong Kong asset: KWG’s interest in a residential development in Ap Lei Chau, Hong Kong (The Corniche, the “ALC Project”), held through a 50% stake in the joint venture Unicorn Bay Limited.

The project has been completed and is being sold; once the senior project financing (the “ALC Senior Facility”) is repaid, the project’s cash distributions flow through a Collection Account to service the bonds. At maturity – or earlier, once the outstanding balance falls to US$50 million or below – the ALC Bonds mandatorily convert into 100% of the Note SPV’s shares.

Table 3: Key terms of the ALC Bonds

ALC Bonds (Option 1 only)
Issuer	Note SPV
Issue size	US$400 million
Tenor	6 years, automatically extendable by 1 + 1 years (up to 8 years) if more than US$50 million remains outstanding
Coupon	Nil
Underlying asset	Economic benefit of the ALC Project, held through a 50% stake in the JV (Unicorn Bay Limited)
Conversion	Mandatory conversion into 100% of the Note SPV’s shares at maturity, or earlier once the outstanding balance falls to US$50 million or below (1 share per US$1)
Source: Company Announcements, iFAST Compilations. Data as at 15 June 2026.

Sitting ahead of the ALC Bonds in the Collection Account waterfall are the ALC Senior Bonds, also issued by the Note SPV. These come in two tranches: Tranche 1 funds the consent fees and the AHG’s work fee (amount undisclosed), while Tranche 2 is a US$50 million slice. Both are zero-coupon, six-year bonds. After the ALC Senior Bonds are fully redeemed, KWG earns a Project Management Fee for running the project – 26.6% of the project’s cash distributions before conversion (capped at US$21 million per 12 months and US$63 million in total), stepping down to 10% (uncapped) after conversion.

A few other features are worth flagging:

•     Shareholding Structure Stability Arrangement: for every US$100 of MCB attributable to creditors, US$27 is instead issued to the Chairman or his designees. As a result, creditors’ effective MCB conversion price rises from HK$1.55 to about HK$2.12 per share. The Chairman cannot sell the redirected MCB (or the shares they convert into) until the share price exceeds HK$2.12 or 42 months have passed from the RED, whichever is earlier.

•     Shareholder support: KWG plans a rights issue to raise up to US$17.15 million, with the Chairman and/or his family subscribing for at least US$10 million; the proceeds will fund the work fee and restructuring expenses.

•     Management Incentive Plan: up to 3% of the company’s fully diluted shares may be issued to management, directors and employees.

•     Limited guarantee: a guarantee of up to US$15 million, provided by two offshore companies that hold onshore projects, backstops the ALC Bonds upon their maturity or default.

KWG’s restructuring plan is a hard one for creditors. Option 1 imposes a steep principal write-off – only US$49 survives for every US$100 of claims – but its advantage is that it links part of the claim to the Ap Lei Chau project, a completed and selling Hong Kong asset, converting into shares that hold an interest in that project and so offering more tangible protection. The catch is that Option 1’s allocation is capped at only about 29% of the total claims.

Option 2 involves no direct principal write-off, instead converting claims into equity at HK$1.55 per share (an effective HK$2.12 once the redirected MCB are taken into account). But that conversion price is a long way above the current market price of about HK$0.13, so on a mark-to-market basis the recovery value works out at under 10%.

At the same time, the plan is generous to certain stakeholders. Through the 27% MCB redirection, the controlling shareholder automatically picks up a sizeable equity stake – a further dilution of creditors that echoes the share transfer to Sun Hongbin in Sunac’s deal. On top of that, Tranche 1 of the ALC Senior Bonds covers not only the consent fees but also the AHG’s work fee (the amount is undisclosed, but referencing to other restructurings it could be around US$10–20 million); Tranche 2 of the ALC Senior Bonds, a further US$50 million, will be held by KWG itself; and the company can further collect a management fee of up to 26.6% of the project’s cash. All of these stakeholders can reach the ALC project’s cash ahead of creditors, which is worth keeping in mind.

Overall, whichever option a creditor picks, the recovery value is quite likely to come in below 15%, which still places this among the harsher offshore restructurings in the sector. The eventual outcome will hinge on how well the Ap Lei Chau project monetises and how far KWG’s share price recovers, and the uncertainty is considerable.