SINGAPORE- China Evergrande Group is running out of time to get what would be one of the nation’s biggest-ever restructurings back on track, after setbacks in recent days that raise the risk of liquidation.
The string of surprise developments include scrapping key creditor meetings at the last minute, saying it must revisit its restructuring plan, detention of money management unit staff and an inability to meet regulator qualifications to issue new bonds. That last item is a major setback to its planned restructuring of at least $30 billion of offshore debt that would have creditors swap defaulted notes for new securities.
Evergrande’s shares plunged as much as 24% Monday. At the epicenter of China’s property crisis, Evergrande is under pressure to finalize a blueprint for its offshore debt restructuring as it grapples with an even bigger pile of total liabilities that amount to 2.39 trillion yuan (US$327 billion) - among the biggest of any property firm in the world.
The clock is ticking. The company faces an Oct 30 hearing at a Hong Kong court on a winding-up petition, which could potentially force it into liquidation.
The distressed real estate giant said late on Sunday it could not satisfy requirements of the China Securities Regulatory Commission and the National Development and Reform Commission to issue new notes. It cited an investigation of subsidiary Hengda Real Estate Group Co, without elaborating. The unit said in August that CSRC had built a case against it relating to suspected information disclosure violations.
Evergrande, whose default in late 2021 opened the door to record debt failures by developers, late Friday canceled key creditor meetings that had been set for early this week and said it must reassess its proposed restructuring. It cited sales that have “not been as expected".
The developments follow news just about a week ago that authorities detained some staff of Evergrande’s money management business, a sign that its saga has entered a new phase involving the criminal justice system. The setbacks also come as strains mount among other major developers including Country Garden Holdings Co, which shocked China’s financial markets last month by missing initial deadlines to pay dollar bond interest.
The worsening industry crisis has fueled concerns among some global money managers that Chinese assets are becoming ‘uninvestable,’ amid weak governance and disclosure practices. China’s offshore junk bonds, most of which were issued by builders and which were once once of the world’s most lucrative fixed-income trades, have lost more than $127 billion in value since peaking just two and a half years ago.
Evergrande did not explain what reassessing debt terms would mean for creditors who have already endorsed the existing restructuring plan, nor did it detail the level of support for its current plan. Evergrande last updated the market on such progress in April, when investors identified as “Class C” creditors, with about $15 billion of claims, emerged as a group that hadn’t given sufficient support. Those holding more than 30% of Class C debt had endorsed the restructruring proposal, far below the 75% needed from each creditor class to implement it through what’s known as a scheme of arrangement.
Another group under China Evergrande Group’s scheme, known as Class A creditors, and accounting for $17 billion of claims, already delivered a support level of over 77% as of the April filing. Evergrande did not provide a new schedule for the meetings, only saying it would make further announcements when there is an update.
Several Chinese developers are contending with similar winding-up lawsuits from foreign stakeholders frustrated by what they see as the slow pace of restructuring talks. Such petitions can potentially force a court-ordered liquidation.
Evergrande had previously postponed creditor meetings that were scheduled to begin Aug 28. At that time it had cited a desire to let creditors “consider, understand and evaluate” the terms of the schemes and give them more time to consider recent developments, including a share trading resumption. Earlier this month the company also revised dates of the scheme sanction hearings to October.
