Since the company's announcement on December 18, 2025, CHINASOUTHCITY (01668) has made progress in its dialogue with offshore creditors and other stakeholders. These discussions aim to formulate a viable holistic solution to address the company's inability to repay its offshore debts; establish a sustainable capital structure and a stable operating environment to support the group's business recovery in the medium to long term; and meet the requirements set out in the Stock Exchange's resumption guidance to restore the trading of the company's shares.
The proposed preliminary terms are designed to provide a fair and equitable solution that maximizes recovery for the company's creditors while preserving the group's ability to continue as a going concern. Specifically, the proposed preliminary terms would allow creditors' claims to retain any existing credit support post-restructuring; enable creditors to benefit from short-term liquidity and the company's potential equity appreciation for debt converted into equity; and allow offshore creditors to benefit from the proceeds of the group's sales of specific domestic projects through a negotiated cash pooling arrangement.
Should the comprehensive debt restructuring fail to be implemented according to the proposed preliminary terms, or fail to be implemented at all, there is a significant risk that the liquidators may need to consider alternative recovery measures for the group's assets on a piecemeal basis. This could lead to instability in the group's domestic operations and create substantial uncertainty regarding the timing and outcome of recoveries for the company's offshore creditors.
Under the proposed preliminary terms, the scope of the comprehensive debt restructuring will apply to debts issued or guaranteed by the company, the company's other debts and liabilities, and claims concerning dividends declared but not yet paid by the company. The company intends to implement the comprehensive debt restructuring via a Scheme of Arrangement under Part 13 of the Companies Ordinance (Chapter 622 of the Laws of Hong Kong).
If deemed necessary or appropriate by the company and its advisors, the company may also implement all or part of the comprehensive debt restructuring through concurrent or similar procedures or arrangements in other relevant jurisdictions. If the Scheme is sanctioned by the Hong Kong court, the liquidators intend to apply to the Hong Kong court for a permanent stay of the winding-up order made against the company on August 11, 2025.
If the winding-up order is permanently stayed, the company will no longer be in liquidation and can resume its capacity for continuous operation. The company plans to implement a management incentive plan to retain key management personnel critical to the group's ongoing operations and to incentivize them to manage the company in a manner that maximizes the group's post-restructuring performance.
Under this incentive plan, and subject to fulfilling certain performance-linked conditions, relevant personnel may be granted up to 10% of the company's ordinary shares (on a fully diluted basis, taking into account the proposed issuance of new ordinary shares to settle part of the principal and interest of creditors' liabilities as mentioned above). The implementation of the incentive plan is conditional upon compliance with the Listing Rules and other applicable regulatory requirements and must be approved by shareholders.