A group of offshore creditors holding debt from China Evergrande Group is considering the possibility of joining a winding-up court petition against the beleaguered property developer. This move is contingent on Evergrande failing to present a new plan for restructuring its debts by the end of next month. According to two sources familiar with the matter, Evergrande’s offshore debt restructuring plan, unveiled in March, has been thrown into uncertainty following the developer’s recent announcement that it cannot issue new debt due to an ongoing regulatory investigation into its primary unit in China.
The escalating turmoil in China’s debt-laden property sector poses a significant threat to Beijing’s efforts to stabilize its slowing economy. It has also raised concerns among investors about the potential systemic risks that could spill over into the country’s banking system.
Evergrande has been actively seeking creditors’ approval for its proposed restructuring of offshore debt, which amounts to $31.7 billion, encompassing bonds, collateral, and repurchase obligations. The plan included various options for offshore creditors, such as exchanging some of their debt holdings for new bonds with maturities ranging from 10 to 12 years.
Surprisingly, a group of Evergrande bondholders was caught off guard by the company’s weekend announcement regarding its inability to issue new notes. They have been seeking meetings with the developer to gain more information about the situation.
If Evergrande fails to submit a new debt restructuring plan by October 30, the bondholders’ group is prepared to support an existing winding-up petition filed against the developer. However, the exact number of creditors considering this move and the extent of their holdings in Evergrande bonds remain undisclosed.
Top Shine Global, an investor in Evergrande unit Fangchebao, filed a winding-up petition in Hong Kong in June 2022, alleging that the developer had not fulfilled an agreement to repurchase shares the investor had purchased in the unit. The hearing for this winding-up petition was initially adjourned to October 30, awaiting the outcome of Evergrande’s creditor vote on its debt restructuring plan, scheduled for mid-October. However, Evergrande’s recent disclosure has cast doubt on the fate of this meeting and its outcome.
To gain approval for its debt restructuring plan, Evergrande needs the consent of over 75% of the holders in each debt class. With the uncertainty surrounding the upcoming creditor meeting, it remains unclear whether the meeting with offshore creditors will proceed as planned. Evergrande has not yet responded to requests for comment from Reuters.
The winding-up petition against Evergrande is one among several such proceedings initiated against Chinese developers who have struggled to meet their debt payment obligations, a situation exacerbated by a liquidity crisis that gripped the sector in 2021. This crisis was triggered, in part, by government efforts to curb high debt levels in the property sector and curb speculative activities. Many of these developers have been racing to secure approval from offshore creditors for debt restructuring plans in a bid to avoid collapse or being forced into liquidation.
Evergrande’s stock price tumbled 8.1% on Tuesday, marking its lowest level since September 6, following the announcement that its primary domestic unit had failed to make an onshore bond repayment. The unit, Hengda Real Estate Group, reported its inability to pay the principal and interest on a 4 billion yuan ($547 million) bond due by September 25. Evergrande had already experienced a 22% plunge in its stock price on Monday after announcing its inability to issue new notes.
These recent developments cast a shadow over Evergrande’s future prospects. The company has been grappling with a series of crises since its financial troubles became public in 2021, leading to defaults on its offshore debt obligations later that year. All of this unfolds against the backdrop of Chinese authorities attempting to revitalize homebuyer sentiment through a series of easing measures, including reductions in existing mortgage rates.
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