Chinese Developer Evergrande Nears Landmark Restructuring Deal
China Evergrande is close to reaching a debt-restructuring deal with foreign bond investors.
Photo:
Cfoto/Zuma Press
China Evergrande Group,
EGRNF -73.33%
the giant property company that defaulted on its U.S. dollar bonds more than a year ago, is close to striking a debt-restructuring deal with foreign bond investors, according to people familiar with the matter.
The Guangzhou-based developer, the most indebted property company in the world, has agreed on the outlines of a deal that would give it breathing room by extending its debt maturities while allowing it to defer some coupon payments, the people said.
The deal would finally bring a resolution to the highest-profile debt-restructuring negotiation in China’s property sector, which has suffered dozens of dollar bond defaults in the past two years after a sharp slowdown in sales. Chinese real-estate firms missed payments on more than $30 billion of international bonds in 2022, according to S&P Global Ratings. Investors said Evergrande’s restructuring could set a template for other debt workouts.
The progress made in negotiations lessens pressure on Evergrande ahead of a March 20 court hearing in Hong Kong, where the company will be expected to show it has made some progress in its negotiations with bondholders. Evergrande had a similar hearing in November but was given more time to negotiate with investors.
Investors have agreed to take a “hair cut” on some of the bonds, which means they would get less than the face value of the bonds they hold, but the size of this reduction still hasn’t been decided, the people said. Evergrande won’t pay investors back immediately but will swap their bonds for several newly issued ones, including bonds secured by shares of its Hong Kong-listed businesses such as its property-services arm and its electric-vehicle division.
Investors would also be offered new unsecured bonds with maturities as long as 12 years in the future, paying coupons as high as 9%, the people said. Evergrande would be able to give investors more bonds instead of making these coupon payments, the people said, meaning it won’t suffer the burden of paying interest immediately after a deal is signed.
Evergrande Chairman
Hui Ka Yan,
who founded the company in the mid-1990s, will convert loans he made to China Evergrande New Energy Vehicle Group Ltd., the electric-vehicle subsidiary, into shares in the company, the people said.
Evergrande’s dollar bonds have been trading at heavily discounted levels since it defaulted on its international debt in December 2021. Many of the investors now in negotiations with Evergrande are distressed-debt funds who bought the bonds after the default. A $4.68 billion bond due in 2025 was bid at 8 cents on the dollar on Friday afternoon in Hong Kong, according to Tradeweb.
China’s crackdown on leverage in the property sector in 2021 led to a sharp slowdown in new home sales, but regulators changed course last November, announcing a series of measures designed to alleviate some of the pressure on developers. Data released this week showed that new house prices in the country are starting to stabilize, after a yearlong decline.
Write to Frances Yoon at [email protected] and Alexander Saeedy at [email protected]
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
China Evergrande is close to reaching a debt-restructuring deal with foreign bond investors.
Photo:
Cfoto/Zuma Press
China Evergrande Group,
EGRNF -73.33%
the giant property company that defaulted on its U.S. dollar bonds more than a year ago, is close to striking a debt-restructuring deal with foreign bond investors, according to people familiar with the matter.
The Guangzhou-based developer, the most indebted property company in the world, has agreed on the outlines of a deal that would give it breathing room by extending its debt maturities while allowing it to defer some coupon payments, the people said.
The deal would finally bring a resolution to the highest-profile debt-restructuring negotiation in China’s property sector, which has suffered dozens of dollar bond defaults in the past two years after a sharp slowdown in sales. Chinese real-estate firms missed payments on more than $30 billion of international bonds in 2022, according to S&P Global Ratings. Investors said Evergrande’s restructuring could set a template for other debt workouts.
The progress made in negotiations lessens pressure on Evergrande ahead of a March 20 court hearing in Hong Kong, where the company will be expected to show it has made some progress in its negotiations with bondholders. Evergrande had a similar hearing in November but was given more time to negotiate with investors.
Investors have agreed to take a “hair cut” on some of the bonds, which means they would get less than the face value of the bonds they hold, but the size of this reduction still hasn’t been decided, the people said. Evergrande won’t pay investors back immediately but will swap their bonds for several newly issued ones, including bonds secured by shares of its Hong Kong-listed businesses such as its property-services arm and its electric-vehicle division.
Investors would also be offered new unsecured bonds with maturities as long as 12 years in the future, paying coupons as high as 9%, the people said. Evergrande would be able to give investors more bonds instead of making these coupon payments, the people said, meaning it won’t suffer the burden of paying interest immediately after a deal is signed.
Evergrande Chairman
Hui Ka Yan,
who founded the company in the mid-1990s, will convert loans he made to China Evergrande New Energy Vehicle Group Ltd., the electric-vehicle subsidiary, into shares in the company, the people said.
Evergrande’s dollar bonds have been trading at heavily discounted levels since it defaulted on its international debt in December 2021. Many of the investors now in negotiations with Evergrande are distressed-debt funds who bought the bonds after the default. A $4.68 billion bond due in 2025 was bid at 8 cents on the dollar on Friday afternoon in Hong Kong, according to Tradeweb.
China’s crackdown on leverage in the property sector in 2021 led to a sharp slowdown in new home sales, but regulators changed course last November, announcing a series of measures designed to alleviate some of the pressure on developers. Data released this week showed that new house prices in the country are starting to stabilize, after a yearlong decline.
Write to Frances Yoon at [email protected] and Alexander Saeedy at [email protected]
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
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