China Evergrande unveils restructuring plan for at least US$19.15 billion of offshore debt
Embattled China Evergrande Group has announced a long-awaited restructuring plan to tackle at least US$19.15 billion of offshore debt, including proposals to swap its creditors' debt into shares of some Hong Kong-listed affiliates, such as China Evergrande New Energy Vehicle Group.
"The proposed restructuring will alleviate the company's pressure of offshore indebtedness and facilitate its efforts to resume operations and resolve issues onshore," the company said in a filing to the Hong Kong stock exchange late on Wednesday night.
The latest progress in tackling more than US$300 billion of total liabilities at the world's most leveraged property developer is expected to provide a pointer for restructuring efforts by other developers such as Sunac China Holdings and Zhenro Properties Group, and will likely impact hundreds of supply chain partners.
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The company, founded by tycoon Hui Ka Yan, is offering holders of its offshore debt a number of options with the aim of securing their support by March 31.
One option allows creditors to replace existing debt with new bonds with an extended maturity of 10 to 12 years, or with new notes that have a tenor of five to nine years. Another option is for creditors to swap offshore debt into instruments that will be converted into shares of Hong Kong-listed Evergrande Property Services, China Evergrande New Energy Vehicle Group, or China Evergrande itself.
It would be mandatory for the new bonds to be exchanged into equities of the corresponding listed firm at maturity - within 24 months in the case of Evergrande Property Services.
"The company will use its best endeavours to restore a healthy ecosystem of capital and business, repair its capital structure and stabilise its business operations," Evergrande said in the statement.
Evergrande has been in talks with its overseas creditors to try to reach an agreement since early last year, but missed its self-imposed deadlines several times. Whether the company can survive its debt crisis will be a barometer for the whole Chinese property sector, and its restructuring plan will likely serve as a reference point for other developers that have defaulted.
Evergrande said it hopes the offshore debt restructuring plan will incentivise its onshore creditors to reach agreements with the company, and to resume business operations and generate cash flows for debt repayment.
The Shenzhen-based home builder, once the largest property developer in China, ignited concerns regarding its financial health after it failed to honour commitments related to its wealth management products around September 2021.
This was followed by bond defaults that cascaded to other companies in the sector, deepening the debt crisis in China's real estate market, a sector that accounts for nearly one-third of the nation's gross domestic product.
In the case where the restructuring plan is not approved and Evergrande is forced into liquidation, the recovery rate for unsecured offshore creditors of the company would lie in a range of 2.09 per cent to 9.34 per cent, the Wednesday filing said.
Evergrande said it will publish its 2021 audited annual results and its 2022 interim results "as soon as practicable", after previously saying it expected to release its financial reports in April and May. Its shares were suspended from trading on the Hong Kong stock exchange a year ago, and it faces the risk of delisting if it fails to do so.
This article originally appeared on the South China Morning Post (SCMP).
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