Can China Evergrande Save With Debt Restructuring?

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China’s struggling Evergrande Group will offer bundles of assets to creditors as a sweetener to agree to restructuring its offshore debt, as problems in the country’s real estate sector continue.

Evergrande’s proposed restructuring came Friday as the company tries to keep its head above water as real estate companies lurch from one crisis to another, extinguishing a series of debt lawsuits.

So how did it come to this and will this latest move save the Evergrande Group?

How did Evergrande reach the public?

President Hui Ka Yan was founded Evergrande in Guangzhou in 1996 and listed the company in Hong Kong in 2009.

The company grew quickly by buying land backed by loans and selling apartments quickly at low margins. It was China’s second-largest developer in 2020, with $110 billion in sales, $355 billion in assets, and more than 1,300 developments nationwide.

But after Evergrande collapsed in a debt crisis in the middle of last year, its ranking dropped to No. 5 for 2021 with $64.51 billion in sales. It dropped further to #32 in the first half of 2022.

The company is also in other businesses, such as insurance and electric vehicles (EVs), and even owns a football club. Hui said late last year that Evergrande would make its electric vehicle company its core business, rather than property.

How did the Evergrande debt crisis unfold?

In June 2021, Evergrande said it failed to pay any commercial paper on time, and in July a court froze a $20 million bank deposit held by the company at the bank’s request.

Evergrande said in late August that construction on some of its developments had stopped due to missed payments to contractors and suppliers. And in September, he asked for payment extensions for fiduciary and bank credits.

Liabilities, including payables, stood at $306 billion at the end of June last year, equivalent to 2 percent of China’s gross domestic product.

All of its $22.7 billion offshore debt is now considered in default after it missed several bond payments late last year. The crisis subsequently engulfed its peers as their credit conditions deteriorated and drove several smaller firms into default.

How has Evergrande tried to raise funds?

Since the second half of 2020, Evergrande has had two share sales and has sold stakes in its Hong Kong-listed property management unit Evergrande Property Services Group, China EV unit Evergrande New Energy Vehicle Group and HengTen Networks Group Ltd.

It has been trying to sell its assets, but said last year plans to divest assets and capital had not made significant progress. Evergrande is trying to sell its Hong Kong headquarters again through a bidding process that ended this week, after a potential $1.7 billion deal collapsed late last year.

Hui also tried to release funds from luxury assets, including art, calligraphy and three high-end houses.

What role have regulators played?

Evergrande in December established a risk management committee that included officials from state-owned companies to help with the restructuring of its debt and assets.

Authorities, including Vice Premier Liu He, the central bank and the securities regulator, have been assuring markets that risks to the real estate sector and the economy can be controlled, and that Evergrande’s problems are mainly due to his “own mismanagement” and the “breaking of the neck”. expansion”.

They have also repeatedly encouraged banks to meet the financing needs of real estate developers where reasonable.

What’s next for Evergrande?

Evergrande’s debt restructuring plan will not only determine its future, but also signal how Beijing plans to overcome a deepening crisis in the real estate sector.

The most daunting task for the developer now is to finish building apartments for buyers. Its new CEO, Siu Shawn, said last week that 96 percent of developments nationwide have resumed construction.

On Friday, Evergrande said in a long-awaited update on its preliminary offshore restructuring proposal that it expected due diligence work on the group to be completed in the near future, and that it aims to announce a specific plan in 2022.

Reuters with additional editing by Sean O’Meara

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Evergrande is looking at all options to pay off huge offshore debts

Sean O’Meara

Sean O’Meara is editor of Asia Financial. He has been a journalist for over 30 years, working on local, regional and national titles in the UK as a writer, sub-editor, page designer and print editor. A football, cricket and rugby fan, he has a particular interest in sports finance.

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