Evergrande prepares restructuring deal for end of March

Evergrande's tumble into distress over the past two years has set off contagion in China's US$150 billion junk dollar bond market. PHOTO: REUTERS

HONG KONG – The world’s most indebted developer said it expects that a restructuring support agreement will be ready by the end of March, after it won preliminary support from a group of major creditors.

China Evergrande Group said during a Hong Kong court hearing on Monday that creditors will get access to term sheets as early as Wednesday. The progress allowed for adjournment of the case to July 31.

The announcement came after an ad hoc group of offshore bondholders expressed support for Evergrande’s debt overhaul plans right before the hearing, people familiar with the matter said on Sunday. The builder sweetened its preliminary proposal including terms of a debt-to-equity swap option, the people said.

An agreement would be a milestone in the saga of Evergrande, the poster child of woes in China’s real estate industry whose tumble into distress over the past two years set off contagion in the nation’s US$150 billion (S$201 billion) junk dollar bond market. Indications of how much creditors can recover will serve as important reference points in the debt restructurings of other defaulted developers.

Evergrande’s lawyer said during the court hearing that the company is planning to release its restructuring terms through a filing with the Hong Kong stock exchange on Wednesday. The ad hoc group expects the restructuring to be effective by Oct 1, though the timeline could be subject to change, according to the group’s lawyer.

The lawsuit in Hong Kong hinges on an alleged financial obligation of HK$862.5 million (S$147 million). The investor who filed the petition in June 2022 is seeking a winding-up of the firm if he is not paid the alleged debt.

The legal representative of the winding-up petitioner, a firm that is tied to a young, politically connected investor, said he does not oppose the adjournment, but the person has not been involved in the debt negotiations.

Any winding-up order would result in both the company and investors losing control of the debt restructuring process.

There is much more at stake. Evergrande had nearly 2 trillion yuan in liabilities as at its latest public results in 2021, and the company’s fate will impact parties from home owners to banks. The developer has a total of US$15.6 billion dollar bonds outstanding, according to data compiled by Bloomberg.

Hong Kong courts ordered two much smaller Chinese builders to wind up in late 2022 after they were sued for debt non-payment, part of a series of actions taken by creditors in response to a record wave of bond defaults.

Evergrande missed several self-imposed deadlines to release debt proposals in 2022 and as at several weeks ago had yet to reach an agreement with major creditors on a restructuring framework.

There has been a de facto shutdown of the Chinese junk dollar bond market that developers have dominated, following a government crackdown on excessive debt in the property sector. That caused a cash crunch for many builders and a slump in new home sales. Evergrande first defaulted on dollar bonds in December 2021 after several months of not making interest payments by initial deadlines.

The authorities have unveiled myriad steps in recent months to stem China’s property woes. But investors have predicted the help will disproportionately aid stronger builders, leaving distressed ones and their creditors to go through what is often a long and opaque restructuring process. BLOOMBERG

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