China Evergrande’s offshore debt and assets could be separated in restructuring – report

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HONG KONG/SHANGHAI, Jan 21 (Reuters) – The provincial government leading the restructuring of China Evergrande Group wants to spin off the company’s offshore assets and sell them to pay off foreign debt, media reported on Friday, in a bid to boost the hopes of foreign lenders. to recover funds.

Financial intelligence provider REDD said on Friday that the provincial government of Guangdong, where Evergrande is based, intended to release a debt restructuring master plan by March that could also wipe out the 60% stake of the group president.

Citing two sources briefed on the matter, REDD said the provincial government is proposing that state-led investors buy Evergrande’s assets. and that proceeds from the sale of foreign assets be used to pay off offshore debt.

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While investors expected state-run organizations to help facilitate the restructuring, some fear Beijing will use proceeds from any asset sales to prioritize onshore debt repayments.

The provincial government has finalized the framework document and submitted it to the Chinese cabinet for discussions over the weekend, REDD said, adding that a detailed restructuring proposal would be released by October.

The provincial government, cabinet and Evergrande did not respond to requests for comment outside of regular business hours.

Evergrande is the world’s most indebted real estate company with more than $300 billion in debt, including nearly $20 billion in international bonds, all deemed to be in default after a series of missed payments late last year. .

Evergrande’s April 2023 U.S. dollar bond jumped to 17.762 cents on the dollar after the REDD report, according to data from Duration Finance, from 12.227 overnight. Its shares closed down 0.6%, ahead of the report.

The REDD report also said that Evergrande Chairman Hui Ka Yan’s 59.78% stake in the company could be wiped out after the restructuring is completed because the developer is “largely insolvent”.

Earlier on Friday, the developer said in a filing that it was hiring more financial and legal advisers – China International Capital Corp Ltd, BOCI Asia Ltd and Zhong Lun Law Firm – to respond to creditor demands.

It came a day after a group of offshore creditors, represented by law firm Kirkland & Ellis and investment bank Moelis, said they were ready to take ‘enforcement action’ to defend members’ rights after what he called Evergrande’s lack of commitment. Read more

Evergrande has asked offshore bondholders to disclose their holdings, according to a letter seen by Reuters on Friday. The developer expects responses by the middle of next week to identify investors for communications to help with the debt restructuring.

SIGNS OF IMPROVEMENT

Stocks and bonds of Chinese property developers gained this week on hopes that a series of recent government measures would help the sector’s liquidity and reverse the slump in construction, a key driver of economic growth. Read more

In another sign of improving sentiment, Country Garden (2007.HK), China’s largest real estate developer by sales, said it would issue HK$3.9 billion in convertible bonds to refinance the debt that will mature in one year.

The bonds, which mature in July 2026 and could be sold back to the company in January 2024, bear interest at 4.95% and have an initial conversion price of HK$8.10 per share. At full conversion, the shares would represent 2% of the enlarged capital.

The new issuance follows a report that the developer failed to attract demand for a potential $300 million convertible bond last Wednesday. IFR reported that Country Garden had tested the waters for a three-year deal that would carry a yield to maturity of 4.75% and a conversion premium of 25%.

Country Garden shares fell nearly 3% to HK$6.76, while its January 2023 international bond rose to 97.825 from 92.787 overnight.

BUY TIME

Evergrande’s financial crisis has rattled other Chinese property developers over the past six months and exacerbated the funding crunch in the sector.

On Friday, rating agency Fitch downgraded China Aoyuan Group (3883.HK) to “restricted default” after the company said it planned to forgo principal and interest payments for its entire its offshore debt. Read more

Beijing stepped up its efforts to support a slowing economy with a series of policy rate cuts this week. Read more

Policymakers are also developing nationwide rules to make it easier for developers to access funds from sales still held in escrow accounts, which would improve their short-term liquidity and buy time to pay off debt, a reported Reuters on Wednesday. Read more

($1 = HK$7.7886)

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Editing by Kim Coghill and Mark Potter

Our standards: The Thomson Reuters Trust Principles.

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