Can China Evergrande save itself with debt restructuring?

Struggling Chinese group Evergrande is to offer asset packages to creditors to help it restructure its offshore debt as the country’s property sector struggles continue.

Evergrande’s restructuring proposal came on Friday as the company tries to keep its head above water as property companies swing from crisis to crisis, battling a series of debt demands.

So how did we get here and will this latest decision save the Evergrande band?

How did Evergrande become famous?

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

The business grew rapidly through a frenzy of loan-backed land purchases and by rapidly selling low-margin apartments. It was the second-largest developer in China in 2020, with $110 billion in sales, $355 billion in assets, and over 1,300 developments nationwide.

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

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

How did the Evergrande debt crisis unfold?

In June 2021, Evergrande said it failed to pay certain 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 halted due to missed payments to contractors and suppliers. And in September, he requested payment extensions for trust and bank loans.

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

All of its offshore debt worth $22.7 billion is now considered in default after missing several bond payments late last year. The crisis subsequently engulfed its peers as their credit conditions deteriorated and pushed several small businesses into default.

How did Evergrande attempt to raise funds?

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

It has tried to sell its assets, but said last year that plans to dispose of assets and shares had not made significant progress. Evergrande is again trying to sell its Hong Kong headquarters through a bidding process that ended this week, after a potential $1.7 billion deal fell through at the end of the year. ‘last year.

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

What role have regulators played?

Evergrande created a risk management committee in December that included public company officials to help it with its debt and asset restructuring.

Authorities, including Vice Premier Liu He, the central bank and the securities regulator, assured markets that risks to the real estate sector and the economy can be controlled, and the problems of ‘Evergrande are mainly due to his “own mismanagement” and his “daredevil”. expansion”.

They have also repeatedly encouraged banks to meet the financing needs of property developers when reasonable.

What’s next for Evergrande?

Evergrande’s debt restructuring plan will not only determine its future, but also indicate how Beijing plans to ride out a deepening real estate crisis.

The most difficult task for the developer now is to complete the construction of apartments for buyers. Its new CEO, Siu Shawn, said last week that 96% of developments across the country had 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 aimed to announce a specific plan in 2022.

  • Reuters with additional editing by Sean O’Meara

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Sean O’Meara

Sean O’Meara is an editor at Asia Financial. He has been a newspaper man for over 30 years, working for local, regional and national titles in the UK as a writer, sub-editor, page designer and print editor. Passionate about football, cricket and rugby, he is particularly interested in the financing of sport.

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John A. Bogar