Evergrande's overseas debt restructuring has come to sharp stop, with the company unable to issue any new bonds.
Photo from CFP
By YANG Bingke
China Evergrande’s plan to restructure its astronomical debt is running into trouble, with the company “unable to issue new notes,” as subsidiary Hengda Real Estate Group is being investigated. The company said on Monday night that it had failed to redeem the principal and interest on a bond as agreed, and canceling a forthcoming creditors meeting.
Two days ago, the company issued another announcement, saying the sales had fallen short of expectations since March this year. This flies in the face of the financial report released less than a month ago, where Evergrande declared “a significant year-on-year increase in sales.”
In the first half of this year, contracted sales amounted to 33.4 billion yuan (US$4.6 billion) for 5.2 million square meters. The cumulative sales proceeds reached 27.1 billion yuan.
Evergrande began trying to restructure US$19 billion in overseas debt in March, intending to issue new bonds and convert debt to equity. Among the terms of the plan signed with an overseas creditors' committee, Evergrande planned to issue new bonds to replace the original ones. The new bonds were to have a maturity of 4 to 12 years at between 2 percent and 7.5 percent with no interest to be paid in the first three years.
On August 18, Evergrande stated that it had applied to the US courts for recognition of the restructuring agreement.
The restructuring plan has not been approved by creditors with two extension delays since the end of August. However, with the cancellation of the creditors' meeting this time, the plan could already be a dead duck.
An investor said that there are two possible reasons for the latest debacle.
One is that the restructuring plan may be too stringent. Another possibility is that overseas creditors may be treated better than domestic creditors, raising concerns about benefits being directed overseas.
Some analysts believe that the difficulty in advancing overseas restructuring simply stems from disparities between the company's current actual operations and the demands of its creditors.
From an investor's perspective, the resolution of Evergrande's overseas debt issues may be as far off as ever, and the pressure may be building rather than falling.
At the end of H1, Evergrande's total debt amounted to 2.4 trillion yuan, while its total assets were 1.7 trillion yuan.
