Plan could set an important precedent for investors dealing with rising defaults and restructuring in China’s real estate sector.
China’s Evergrande Group, whose collapse in 2021 triggered the worst crisis in China’s real estate market, has released a multibillion-dollar restructuring plan to make peace with its international creditors.

The long-awaited plan could set an important precedent for investors dealing with the growing default and restructuring in China’s real estate sector. With more than $270 billion in total liabilities, Evergrande’s debt restructuring is also the largest ever recorded in the country and will have broad implications for its financial markets.

Evergrande has reached “binding agreements” with its international bondholders on the key terms of its restructuring plan, the company said Wednesday in a 200-page document.

These bondholders hold $19.15 billion in U.S. dollar-denominated notes that Evergrande had previously issued. They account for 84% of the company’s offshore debt, which is $22.7 billion.

This means that most of the company’s international creditors have agreed to the deal.

“The proposed restructuring will ease the company’s offshore debt pressure and facilitate the company’s efforts to resume operations and resolve onshore issues,” Evergrande said in the document.

The company has offered two main options to its international creditors. They can exchange their holdings into new notes due in 10 to 12 years or convert them into different combinations of new notes due in five to nine years and equity-linked instruments.

Electric Cars

Evergrande said it will focus on returning to normal operations over the next three years. This will require additional financing of 250 billion to 300 billion yuan ($36.4 billion to $43.7 billion) to resume work and ensure delivery of the properties.

The company also warned that its electric vehicle (EV) unit would face the risk of shutdown without new financing. If the unit can raise more than 29 billion yuan in financing, it plans to launch a series of flagship models and achieve mass production.

Evergrande was once China’s largest developer by sales. But it had taken out so many loans that when China cracked down on leverage in the real estate sector in 2020, it could not raise enough money to pay creditors and suppliers.

In late 2021, Evergrande was declared by Fitch Ratings to be in default on its US dollar bonds, which rattled financial markets and created fears of contagion.

Soon after its default, the government stepped in to prevent a disorderly collapse of the real estate giant that could have crippled the industry and wreaked havoc on the Chinese economy. (Real estate and related industries account for up to 30 percent of GDP.)

Still, a liquidity crisis spread, with several prominent developers also failing to pay their debts, hurting homeowners and sinking buyer confidence.

Since then, the Chinese real estate market has entered an ever-worsening downturn, aggravated by the consequences of strict pandemic controls and the economic slowdown.

After the government intervention, Evergrande was in negotiations with its overseas creditors to try to reach an agreement, but missed its self-imposed deadlines several times.

Some international creditors have lost patience with the “opaque” restructuring process.

In June, an Evergrande investor filed a lawsuit in Hong Kong seeking to wind down the company, which forced his hand. Earlier this week, Evergrande said at a court hearing in the city that it would publish details of the restructuring plan on Wednesday.

Source: CNN Brazil