FILE PHOTOHONG KONG: A Hong Kong court gave China Evergrande Group a five-week deadline to reach an agreement with creditors or face liquidation after the troubled developer said on Monday it was working on a revised debt restructuring plan.

The Hong Kong Supreme Court agreed to further postpone a hearing on Evergrande’s liquidation until December 4th. Judge Linda Chan said the next hearing would be the last before a decision is made on the company’s liquidation.

Evergrande must submit a “concrete” revised restructuring proposal before that date, she said, otherwise it is likely the company would be dissolved.

Evergrande, which has more than $300 billion in liabilities, defaulted on its offshore debt in late 2021, becoming the poster child of a debt crisis that has since gripped China’s real estate sector.

Evergrande had been working on a $23 billion foreign debt restructuring plan that was derailed last month when it confirmed that its billionaire founder Hui Ka Yan was under investigation for alleged criminal activity.

Due to an investigation into its flagship real estate division, Evergrande was blocked by mainland regulators from issuing new dollar bonds, a key part of its restructuring plan.

Evergrande’s lawyer told the court on Monday that the company intends to “monetize the value” of its two Hong Kong-listed units.

Evergrande has reached out to some bondholders in the last two weeks with a new restructuring plan, two sources said.

The revised plan would allow bondholders to convert their bonds into stocks and bonds tied to two listed subsidiaries, Evergrande Property Services Group and Evergrande New Energy Vehicle Group. They added that any proposal would no longer include new bonds to be issued by China Evergrande.

Evergrande did not respond to a request for comment.

“No better option”

The company’s shares closed down 9.8% on Monday, after falling as much as 23% in the morning session before the adjournment.

China’s real estate sector accounts for about a quarter of activity in the world’s second-largest economy. Its troubles have rattled global markets and prompted Beijing to take a series of measures to reassure investors and homeowners.

A liquidation of Evergrande, whose total assets stood at $240 billion at the end of June, would send further shockwaves to already fragile capital markets but is unlikely to have an immediate impact on the company’s operations, including its many homebuilding projects.

“The court has given the company a very clear message that this is the last chance to propose a viable restructuring plan that is acceptable to creditors,” Neil McDonald, a partner at Kirkland Ellis who represents the large bondholder group, told Reuters .

A lawyer for the bondholder group told the court they support the postponement because a restructuring plan could have a higher recovery rate for creditors than a liquidation scenario of less than 3%.

Top Shine, an investor in Evergrande unit Fangchebao, filed for liquidation in June 2022 because it said Evergrande had failed to honor an agreement to repurchase shares the investor had purchased in the unit.

Logan liquidation

Real estate developer Logan Group’s liquidation order was also postponed to December 4 by the same court.

The Shenzhen-based company said last year that it would suspend interest payments and restructure its offshore debt, including $3.7 billion in dollar bonds, due to liquidity pressures.

Little progress has been made in restructuring talks since the company said in March it had begun negotiations with offshore creditors to agree to proposed restructuring terms, bondholders told Reuters.

Logan did not respond to requests for comment.

Logan and two of its subsidiaries received a liquidation petition in November 2022 filed by the bond trustee representing certain investors holding the 5.75% 2025 bonds.

  • Published on October 30, 2023 at 3:00 PM IST

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