The world’s most indebted developer has reached an agreement with a group of major creditors for a plan to restructure its offshore debt, just ahead of a key winding-up petition hearing Monday, people familiar with the matter said.
(Bloomberg) — The world’s most indebted developer has reached an agreement with a group of major creditors for a plan to restructure its offshore debt, just ahead of a key winding-up petition hearing Monday, people familiar with the matter said.
An ad-hoc group of offshore bondholders has expressed support for China Evergrande Group’s plan, and a restructuring support agreement was being drafted, according to the people, who asked not to be identified discussing a private matter.
The builder sweetened its preliminary proposal including terms of a debt-to-equity swap option and the amortization arrangement in a debt extension, the people said. Evergrande declined to comment on Sunday. Advisers to the ad-hoc group, Moelis & Co. and Kirkland & Ellis LLP, didn’t immediately respond to an email seeking comment.
An agreement would be a milestone in the saga of Evergrande, the poster child of woes in China’s real estate industry whose tumble into distress over the past two years set off contagion in the nation’s $150 billion junk dollar bond market. Indications of how much creditors can recover will serve as important reference points in the debt restructurings of other defaulted developers.
The development could also increase the chances of an adjournment in the hearing scheduled to start at 9:30 a.m. Monday in Hong Kong, which would potentially help avoid a potential court-ordered asset liquidation. Progress gaining support from the ad-hoc group is key for such an outcome.
The lawsuit hinges on an alleged financial obligation of HK$862.5 million ($110 million). The investor who filed the petition last June is seeking a winding-up of the firm if he’s not paid the alleged debt.
But there’s much more at stake. Evergrande had nearly 2 trillion yuan ($290 billion) in liabilities as of its latest public results in 2021, and the company’s fate will impact parties from home owners to banks.
At the case’s prior hearing in November, the judge urged the builder to present “something more concrete” about its restructuring plans at Monday’s proceedings. Court sessions were adjourned several times last year, and could be extended again.
Any winding-up order would result in both the company and investors losing control of the debt-restructuring process.
Hong Kong courts ordered two much smaller Chinese builders to wind up in late 2022 after they were sued for debt nonpayment, part of a series of actions taken by creditors in response to a record wave of bond defaults.
Evergrande missed several self-imposed deadlines to release debt proposals last year and as of several weeks ago had yet to reach an agreement with major creditors on a restructuring framework.
There’s been a de-facto shutdown of the Chinese junk dollar bond market that developers have dominated, following a government crackdown on excessive debt in the property sector. That caused a cash crunch for many builders and a slump in new-home sales. Evergrande first defaulted on dollar bonds in December 2021 after several months of not making interest payments by initial deadlines.
Authorities have unveiled myriad steps in recent months to stem China’s property woes. But investors have predicted the help will disproportionately aid stronger builders, leaving distressed ones and their creditors to go through what’s often a long and opaque restructuring process.
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