Evergrande’s uphill battle: China’s property giant grapples with dwindling option

China Evergrande Group, the beleaguered real estate titan, is rapidly exhausting its options to salvage one of the most substantial restructuring efforts in the country’s history.

A series of unforeseen circumstances, including the cancellation of crucial creditor meetings, the necessity to revise its restructuring plan, the detainment of staff from its money management division, and a failure to meet the regulatory requirements for issuing new bonds, have elevated the threat of liquidation.

Today, Monday, September 25, saw a dramatic fall in Evergrande’s shares, plummeting by as much as 24%. The company, which is at the heart of China’s property crisis, is feeling the heat to finalise a plan for its offshore debt restructuring.

It is contending with a colossal sum of total liabilities that have reached 2.39 trillion yuan (approximately 12 trillion baht), one of the most significant burdens borne by any global property firm.

With a hearing scheduled for October 30 at a Hong Kong court regarding a winding-up petition, the threat of forced liquidation looms large.

Evergrande conceded on Sunday that it could not meet the requirements set by the China Securities Regulatory Commission and the National Development and Reform Commission for issuing new bonds. This setback is largely attributable to an ongoing investigation into its subsidiary, Hengda Real Estate Group Co, over suspected violations of information disclosure.

Record debt failures

The company, whose default in late 2021 catalysed a wave of record debt failures among developers, announced the cancellation of key creditor meetings planned for early this week. It cited below-par sales as the reason for having to reevaluate its proposed restructuring.

These events have unfolded in the wake of news that some employees of Evergrande’s money management business were detained by authorities, marking a new stage of the saga that now involves the criminal justice system.

These complications are compounded by mounting pressures among other major developers, including Country Garden Holdings Co, which shocked financial markets last month by failing to meet initial deadlines for paying dollar bond interest.

The deepening industry crisis is causing alarm among global money managers, who are concerned that Chinese assets are becoming ‘uninvestable’ due to poor governance and opaque disclosure practices.

Offshore junk bonds, predominantly issued by builders and once among the world’s most lucrative fixed-income trades, have lost over US$127 billion (4.5 trillion baht) in value since peaking two and a half years ago.

Evergrande has yet to clarify what the reassessment of debt terms would mean for creditors who have already agreed to the existing restructuring plan. As of April, “Class C” creditors, holding about US$15 billion (approximately 540 billion baht) of claims, had not provided sufficient support.

Restructuring proposal

Only those holding over 30% of Class C debt had agreed to the restructuring proposal, a far cry from the 75% needed from each creditor class to implement the plan via a scheme of arrangement.

Meanwhile, Class A creditors, accounting for US$17 billion (approximately 612 billion baht) of claims under China Evergrande Group’s scheme, had surpassed the required support level, reaching over 77% by the April filing.

Evergrande has not provided a new schedule for the meetings and has said it will make further announcements when there is an update.

Several Chinese developers are facing similar winding-up lawsuits from foreign stakeholders, who are disenchanted with the slow pace of restructuring talks. Such petitions have the potential to trigger a court-ordered liquidation.

Previously, Evergrande had delayed creditor meetings scheduled to start on August 28, expressing a desire to allow creditors more time to understand and evaluate the terms of the schemes and to consider recent developments, including a resumption of share trading.

Earlier this month, the company also moved the dates of the scheme sanction hearings to October.

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