Debt-laden property developer China Evergrande Group has announced plans for restructuring around USD20 billion in offshore debt, an important move for the group to resume normal operations. It could also be seen as a model for other struggling developers, industry experts said. This swap is an important move for Evergrande to resume normal operations, and could encourage other debt-stricken property players to consider similar moves, potentially improving the entire industry’s health. Evergrande and its main creditors made progress by entering into binding agreements with bondholders for USD19.15 billion of notes the company had previously issued, Evergrande said. The company gave creditors a basket of options to swap their debt for new bonds and equity-linked instruments backed by the group and its two Hong Kong-listed companies, Evergrande Property Services Group and Evergrande New Energy Vehicle Group. It is expected a series of restructuring agreements will be reached with different groups of bondholders by March 31, before the restructuring starts on October 1, the developer said. “It is hoped that the proposed restructuring will alleviate the company’s pressure of offshore indebtedness and facilitate the company’s efforts to resume operations in order to resolve issues onshore,” said Evergrande in a filing.
Yan Yuejin, Director of the Shanghai-based E-house China Research and Development Institution, said that “the disclosure of Evergrande’s offshore debt restructuring plan means the group’s overall debt restructuring is making progress against the background that the property sector identified its main task as preventing and mitigating risks.” The plan will not only win more time for the group’s debt disposition but allow Evergrande to focus on the delivery of residential projects in the coming three years, as the developer is striving to maintain normal operations of business and construction, Yan said. Although the long-awaited proposals could provide breathing space for the developer, “it’s too early to say the balance sheet of Evergrande could recover fully”, said Li Yujia, Chief Researcher at the Guangdong Planning Institute’s Residential Policy Research Center.
With more than USD300 billion in total liabilities, including offshore debt, Evergrande has been at the center of a property debt crisis in which multiple Chinese developers defaulted over the past year, forcing many to enter debt restructuring talks, according to a Reuters report. Industry experts suggested the settlement of Evergrande’s debt crisis will provide a template for other indebted enterprises in the real estate sector, and the Chinese property market as a whole. “It’s good to see Evergrande seek solutions to the debt problem in a market framework and under the rule of law, instead of using administrative interference,” said Li. Since its debt problems started to deteriorate in the second half of 2021, at least 20 months had passed before Evergrande came up with a clear debt restructuring plan, showing the complexity of the debt crisis and the large amount of capital involved, said Yan, as reported by the China Daily.
