China’s struggling Evergrande Group hopes to tempt offshore creditors with stakes in two foreign-listed units as it struggles to find a solution to its liquidity crisis.
The move, which was widely expected by creditors, would allow creditors to offer stakes in Evergrande Property Services Group Ltd and electric vehicle maker China Evergrande New Energy Vehicle Group Ltd, the embattled developer said in an update on its restructuring proposal preliminary
Evergrande’s proposed restructuring, which has been sparse on details, comes as China’s real estate sector, a key pillar of the world’s second-largest economy, stagnates from one crisis to another. The sector has seen a number of debt defaults by cash-strapped developers.
With over $300 billion in liabilities, EvergrandeChina’s once best-selling developer has been at the center of the crisis and its debt restructuring plan is seen as a possible template for others.
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A person familiar with the restructuring plan said Evergrande aimed to complete due diligence work on the group next month before starting negotiations with creditors on specific terms.
The developer aims to present a more detailed restructuring plan in November that would have the approval of key creditors, said the person, who declined to be named because he was not authorized to speak to the media. Evergrande declined to comment.
On Friday, Evergrande said in the restructuring update that the due diligence process was continuing, given the size and complexity of the group and the “dynamics the group is in”.
It expected due diligence work on the group to be completed in the near future and aims to announce a specific plan in 2022.
The world’s most indebted real estate developer’s $22.7 billion offshore debt, including loans and private bonds, is considered to be in default after missing payment obligations late last year.
The developer began talks with offshore creditors about the proposed restructuring earlier this year, after advisers to a group of offshore bondholders demanded more transparency from the developer.
Bonds “not impressed” by the offer
Some bondholders were unimpressed by Friday’s update. “It’s disappointing, but it was expected… There’s nothing they can offer because we all know the company is pretty much a zombie now,” an Evergrande bondholder said on the ground.
The bondholder said it had been following developments related to the offshore restructuring for clues about what Evergrande might do with its onshore debt. He declined to be named because he was not authorized to speak to the media.
Last week, the developer said a preliminary investigation found 13.4 billion yuan ($1.99 billion) in deposits at Evergrande Property Services were used as collateral for pledge guarantees to facilitate financing for the group and they were confiscated by the banks.
Analysts had said the seized amount could wipe out most of the cash held by the unit.
Evergrande is moving forward with the disposition of its headquarters in Hong Kong through a bidding process that ended this week, another source said. Proceeds from the sale of the Hong Kong tower would be used to pay offshore creditors.
In its statement on Friday, Evergrande expected the business to take a relatively long time to restore orderly operations and asset value to all stakeholders, due to the state of real estate markets in China and the global size of the company’s assets and liabilities.
It posted contracted sales of 12.3 billion yuan in the first six months, compared with 356.8 billion yuan a year ago, and resumed construction on 96 percent of its already sold and undelivered projects.
Evergande staff cuts at headquarters
In a separate statement on the company’s website, Evergrande said the company’s sales had “gradually restored” since March as homebuyers regained some confidence after guaranteed delivery to home address.
It has also acquired 2.57 billion yuan ($381.12 million) in new financing in the first half of the year.
Evergrande said it cut management staff at its headquarters by 67% to 712 people and at the local project level by 54% to 776 people to cut costs.
China’s economy, of which the real estate sector accounts for a quarter, lost only one contraction in the second quarter. The growing revolt of homebuyers this month, who are threatening to stop paying mortgages for unfinished projects, has further darkened the outlook for the sector.
Evergrande said it was making its “best efforts” to resume works and construction and the group had “partially or fully resumed” construction on 96% of its pre-sold and undelivered projects.
Reuters with additional editing by Sean O’Meara
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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.