Evergrande Group requires approval from 75% of the holders or more of each debt class to approve of the plan which offers creditors a basket of options to swap debt for equity-linked instruments and new bonds supported by its stocks and some of its Hong Kong-listed units
Evergrande Group, China’s most indebted property developer is facing troubles in setting up a long-pending debt-reforming plan which led to a sell-off in its shares on Monday. Evergrande Group’s liquidation crisis added to new signs of uncertainty and warnings across the property sector. Evergrande’s crisis has become a symbol of the larger property crisis in China. The group had been working to get its creditor’s authorization for its debt restructuring plan after defaulting in 2021.
The group proposed options for offshore creditors, and it also included exchanging their debts into new notes with maturities of 12 years under the new plan introduced in March. Evergrande on Sunday announced that the company is unable to issue new debt because of a continuing investigation into Hengda Real Estate Group Co Ltd, Evergrande’s main subsidiary. Last month, Hengda disclosed that the company is being investigated by the Chinese security regulator for the speculated violation of exposure of information.
On Monday, the shares of the company dropped as much as 24%, and Hong Kong’s Hang Seng mainland property sector was trading 3.7% lower. Stephen Leung, sales director at UOB Kay Hian in Hong Kong stated that the debt restructuring plan is in a trapped state and unable to move further. “Other options, such as converting the debt into shares of other listed units, are also seen not workable now,” he said.
The property firm’s offshore debt restructuring involves a total of $31.7 billion, and this amount includes the bonds, repurchase obligations, and collateral, mostly making it one of the world’s biggest such exercises.
Evergrande Group requires approval from 75% of the holders or more of each debt class to approve of the plan which offers creditors a basket of options to swap debt for equity-linked instruments and new bonds supported by its stocks and some of its Hong Kong-listed units.
“Concern over the financial health (of developers) still clouds the property sector, especially those smaller property developers with high gearing but very few property projects on hand,” added Leung.
Many of the leading Chinese developers have evaded their offshore debt commitments since the property sector was affected by an unexpected liquidity crisis in the year 2021 after the authorities reined in a debt-fuelled building boom.
Many of the defaulted developers have been trying to get their offshore creditors’ authorisation for debt restructuring plans in order to avoid an unwanted or rather messy collapse or being imposed into liquidation proceedings, reports Reuters. But those plans didn’t work as intended.
China Oceanwide Holdings has failed to meet its debt obligations and in an exchange filing on Monday mentioned that a Bermuda court has ordered the winding up of the company and has appointed joint provisional liquidators. The latest obstruction in Evergrande’s debt restructuring plan opens a new front for the developer after police captured some staff at its wealth management unit, which caused its shares to fall.
Evergrande had delayed making a decision on offshore debt restructuring from September to next month to allow owners of its debt more time to look into its propositions. The development of Evergrande comes as prominent developers such as Country Garden struggle to avoid default, keeping home buyer sentiment weakened even though Beijing’s raft of support measures to prop up the industry and boost the property demand. According to Reuters reports, the combined floor area of unsold homes stood at 648 million square meters, the data from the National Bureau of Statistics show as of the end of August.