[Every REIT for Itself: JR REIT] Bondholders Say "Safeguards First," Shareholders Warn of "REIT's Demise"... Controversy Over Revised Plan

Just 81.7 billion won of the 579 billion won in repayment funds to come from operating cash

Claims it will “repay through a rights offering” despite grounds for delisting

ARS consultation period extended for the sixth time

JR Global REIT has put forward a revised proposal that would bring forward the debt repayment schedule. However, with a shareholders’ alliance submitting an objection to the court and bondholders divided over the plan, negotiations under the Autonomous Restructuring Support (ARS) program are expected to face difficulties.

According to investment banking (IB) industry sources on October 15, the Seoul Bankruptcy Court extended JR Global REIT’s ARS consultation period by one month, until November 13, the previous day. The court has postponed its decision on whether to commence proceedings to allow the debtor and creditors to negotiate voluntarily. This is the sixth extension since the company filed for rehabilitation in April.

Of the 579 billion won in repayment funds set out in the revised plan announced by JR Global REIT on October 12, only 81.7 billion won, or 14%, is expected to come from rental operations. The company plans to raise the rest through refinancing, asset sales, and a rights offering, among other measures. Investors have raised concerns, however, because none of these plans has been finalized.

Belgium Finance Tower. JR Global REITs website.

Ultimately, creditors hold the key to finalizing the repayment plan. Changes to the terms of publicly offered bonds require approval at a bondholders’ meeting and court authorization, while shareholders can only express their views and have no voting rights.

Before filing for rehabilitation, the company withdrew a 120 billion won rights offering. Last month, it lost a lawsuit in the United Kingdom and was subsequently issued a disclaimer of opinion by its auditor. Despite the repeated collapse of the assumptions it had relied on to persuade investors, the company has built its revised plan on another set of uncertain assumptions.

Shareholders’ Alliance: “A structure of borrowing to repay debt”

Immediately after the revised plan was released, a representative committee for 154 shareholders submitted an opinion to the Seoul Bankruptcy Court, stating that “new borrowing of 192.5 billion won and shareholder funding of 168.7 billion won together account for 62.4% of the repayment funds.” It criticized the plan as “a structure of borrowing to repay debt.”

The 70 billion won in zero-interest convertible bonds to be allocated to shareholders, together with the 98.7 billion won the company plans to raise through a rights offering or privately placed bonds, amounts to 72% of its market capitalization immediately before trading was suspended, which stood at approximately 233.3 billion won. Another concern is that the company has already become subject to delisting due to the disclaimer of opinion. In its own Q&A on the revised plan, the company stated that “if the shares are delisted, a rights offering and the issuance of shareholder-allocated convertible bonds would be virtually impossible.” In effect, measures that may prove impossible to use account for around 30% of the repayment funds.

A JR Global REIT representative responded, “Rather than assuming that the company will be delisted, this is the time to do everything possible to maintain its listing. We are working to resolve the grounds for delisting by filing an objection, submitting an improvement plan, and undergoing an audit for the next fiscal year.”

The shareholders’ alliance has also raised concerns about a potential conflict of interest involving the asset manager. In its Q&A, the company stated that “if rehabilitation proceedings commence, the administrator may terminate the asset management contract and appoint a third party.” The alliance argues that, from the perspective of JR Investment Management, the commencement of proceedings could therefore result in the loss of its management contract. A company representative said that “selling assets is a last resort,” but did not say whether the company would be willing to forgo the sale fee.

Company: “Plan assumes a value of 1.1 billion euros for Finance Tower”

Debate has also continued over the collateral assumptions. The company projected loan-to-value (LTV) ratios of 57.3% and 63.6% after refinancing. Reversing those figures suggests that it used an appraised value of approximately 1.1 billion euros. If the 920 million euro valuation by the local lending syndicate, which the High Court of England and Wales deemed valid, is used, the LTV at the end of 2029 would be 76.1%, above the 65% default threshold on the current loan. The company is pursuing refinancing on the assumption that it will reduce rents by 20% starting next year and extend the lease through 2046. In other words, its calculation assumes that rents will fall while the appraised value rises.

A company representative explained, “The plan is based on a value of around 1.1 billion euros, which had previously been applied to Finance Tower. JLL once undervalued it at 920 million euros, but the appraisal was also criticized as inadequate by a UK court.” However, on September 8, the High Court’s Business and Property Courts dismissed the company’s lawsuit, upholding the validity of JLL’s valuation and leaving the cash trap in place.

The company assumed an annual interest rate of 0% on privately placed bonds. The revised plan also states that “the debt ratio may temporarily increase due to borrowing and bond issuance,” and proposes exempting the company from compliance with the debt-ratio financial covenant until the debt is fully repaid.

Bondholders: “Safeguards must come first”

Public bondholders have also raised a series of concerns about the revised plan. Their common demand is for safeguards: they say it would be difficult to agree without protections in case the principal is not fully repaid by the end of 2029. One administrator of a bondholders’ online forum wrote that “the current repayment plan is neither fast nor sufficiently safe,” and suggested comparing the option of bringing forward the sale of Belgium’s Finance Tower with the alternative of proceeding to rehabilitation.

Several steps remain before the repayment plan can be finalized. Separate bondholders’ meetings must be held for each bond issue. Under the Commercial Act, a resolution passes only if it receives at least two-thirds of the votes held by bondholders present and at least one-third of the total voting rights. Institutional creditors are not included in the meetings and must give their consent through individual negotiations. The company said it was preparing for a board resolution and expected the meetings to take place next month. If approval and court authorization are not secured in time, the ARS consultation period could be extended again.

In its opinion, the shareholders’ alliance emphasized, “We are not opposing creditors’ legitimate efforts to recover their funds. Driving the REIT itself toward extinction in order to accelerate creditors’ recovery is not the kind of rehabilitation envisaged by the Debtor Rehabilitation and Bankruptcy Act.”

This content was produced with the assistance of AI translation services.