China Evergrande granted final reprieve as winding-up hearing adjourned

By Reuters   October 30, 2023 | 12:11 am PT
China Evergrande granted final reprieve as winding-up hearing adjourned
An Evergrande sign is seen near residential buildings at an Evergrande residential complex in Beijing, China September 27, 2023. Photo by Reuters/Florence Lo
A hearing on Monday to wind up China Evergrande Group was adjourned until Dec. 4, with a Hong Kong High Court judge giving the world's most indebted property developer one last chance to come up with a restructuring plan or face liquidation.

Evergrande, which has more than $300 billion of liabilities, defaulted on its offshore debt in late 2021 and became the poster child of a debt crisis that has since engulfed China's property sector.

Justice Linda Chan told the court the next hearing would be the last before a decision is made on the winding up order.

Evergrande needed to come up with a "concrete" revised restructuring proposal before that date, she said, otherwise it was likely the firm would be wound up.

A liquidator could still negotiate with creditors on a restructuring and make progress on a deal being reached, Chan said.

The company's shares trimmed losses to 5% after the adjournment on Monday, having fallen as much as 23% in the morning session.

'No better option'

China's property sector accounts for about a quarter of the activity in the world's second-largest economy. Its woes have rattled global markets and prompted a slew of measures by Beijing to reassure investors and homeowners.

A liquidation of Evergrande, which listed total assets of $240 billion as at end-June, would send further shockwaves through already fragile capital markets but is expected to have little immediate impact on the company's operations, including its many home construction projects.

Evergrande had been working on a $23 billion offshore debt restructuring plan which was thrown off course last month when its billionaire founder Hui Ka Yan was confirmed to be under investigation for suspected criminal activities.

Due to an investigation into its flagship property unit, Evergrande was barred by mainland regulators from issuing new dollar bonds, a crucial part of the restructuring plan. It canceled creditor votes originally scheduled for late last month.

Evergrande's lawyer told the court on Monday the company plans to revise the restructuring proposal, to "monetize the value" of its two Hong Kong-listed units, Evergrande Property Services Group and Evergrande New Energy Vehicle Group, which are not covered by the regulatory hurdles.

The March restructuring plan was proposed to creditors with a basket of options to swap debt for new bonds and equity-linked instruments backed by the group and the two units, but sources said it did not gain enough support from one class of creditors.

A lawyer representing the major bondholder group of Evergrande said at the hearing the group supported the adjournment because a restructuring plan could have a higher recovery rate for creditors than a liquidation scenario of less than 3%.

Evergrande did not respond to request for comment.

"I don’t think anyone wants to see it liquidated. But right now, we don't see a better option could be offered by Evergrande, so the chance is still high that it would be wound up eventually," said a bondholder, asking to be unnamed because they were not authorized to speak with the media.

Top Shine, an investor in Evergrande unit Fangchebao, filed the winding-up petition in June 2022 because it said Evergrande had not honored an agreement to repurchase shares the investor bought in the unit.

Logan liquidation

Fellow property developer Logan Group's winding up order was also adjourned by the same court to Dec 4.

The Shenzhen-based company said last year it would suspend interest payments and restructure its offshore debt including $3.7 billion in dollar bonds due to liquidity pressure.

Little progress has been made on the restructuring talks since the company said in March it started negotiations with offshore creditors to agree with proposed restructuring terms, bondholders told Reuters.

Logan did not immediately respond to request for comment.

Logan and two of its subsidiaries received a winding-up petition in Nov 2022 filed by the bond trustee who represents a few investors holding the 5.75% 2025 bond.

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