Evergrande's Last-Ditch Efforts to Avoid Collapse Hitting Major Roadblocks
Embattled Chinese developer Evergrande faces further obstacles in its plan to restructure its enormous debts, as a regulatory probe into its main subsidiary hampers its efforts, adding to the company's ongoing challenges
Evergrande announced on Sunday that its efforts to restructure its substantial debts are facing obstacles due to a regulatory investigation into its primary subsidiary, signaling further challenges for the troubled Chinese developer.
The company stated that it cannot meet the requirements for issuing new notes due to an ongoing investigation into Hengda Real Estate Group. HengdaEvergrandes main unit in mainland China revealed last month that it is being investigated by the securities regulator for potential violations of information disclosure requirements.
In the event that the restructuring is unsuccessful and Evergrande fails to secure a fresh agreement with its creditors, the company may be subjected to liquidation, involving the sale of its assets and the complete cessation of its operations.
On Monday, the shares of Evergrande experienced a significant decline in Hong Kong, falling over 21%, thus exerting downward pressure on other Chinese property developers' stocks as well.
Previously the second-largest real estate company in China, Evergrande, defaulted on its financial obligations to creditors at the end of 2021, triggering a crisis in the real estate sector that continues to have negative effects on the broader economy. A former Chinese official recently stated that China possesses enough vacant properties to accommodate its entire population of 1.4 billion people.
Following the default, Evergrande has been working towards implementing a debt restructuring under government supervision. In March, the company, which had a total debt of $328 billion as of June, announced a multi-billion dollar plan to reconcile with its international creditors. More recently, Evergrande filed for bankruptcy protection in the United States as part of this process.
Evergrande's announcement on Sunday followed the recent cancellation of crucial meetings with creditors, aimed at restructuring its offshore debt. The company cited underwhelming property sales in the past months as the reason for this decision.
Chinese officials and investors are eagerly anticipating the long-awaited restructuring as a means to bolster confidence in China's real estate sector, which had previously contributed up to a third of the country's GDP.
The issuance of new securities a key part of that restructuring plan, involving more than $19 billion in debts held by overseas investors.
Creditors gather to protest at a meeting room in Chinese real estate conglomerate Evergrande Group Building in Shanghai, China on September 23, 2021.
Sayaka Nanbu/AP
Evergrande's troubles escalate as its shadow bank employees are detained by the police.
As per the proposal, Evergrande presented two primary choices to its foreign creditors: they could either exchange their bonds for new notes with a maturity period ranging from 10 to 12 years or convert them into various combinations of equity-linked instruments and new notes with a shorter maturity.
The company is currently unable to consider these options due to the ongoing investigation into Hengda by the China Securities Regulatory Commission (CSRC), the financial regulator. Hengda has expressed its commitment to fully cooperate with the investigation and uphold its information disclosure obligations.
In September, several employees of Evergrande's wealth management unit in Shenzhen were detained by Chinese authorities following the unit's failure to repay investors. This marks the first criminal investigation launched against Evergrande since it experienced a debt crisis almost two years ago.
Evergrande stated earlier this week that the detentions would not have any impact on the company's operations. However, it was revealed towards the end of last week that the company's proposed debt restructuring has encountered a setback due to a different reason.
The Evergrande logo can be seen on residential buildings in Nanjing, located in China's eastern Jiangsu province, on August 18, 2023. In an effort to seek a restructuring deal, the embattled Chinese property giant, Evergrande Group, filed for bankruptcy protection in the United States on August 17, 2023. This legal measure safeguards its US assets. (Photo by STRINGER / AFP) / China OUT (Photo by STRINGER/AFP via Getty Images)
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Evergrande's bankruptcy may be just the beginning of China's real estate crisis
Evergrande, in an exchange filing on Friday, stated that it would be cancelling the "scheme meetings" it had planned with its overseas creditors for this week. The decision was made due to lower-than-expected property sales. Additionally, the company acknowledged the need to reassess the restructuring plan's terms to align with its current situation and fulfill the creditors' demands.
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According to the company's statement in March, the restructuring plan received significant support from international investors. However, further votes were required during the scheme meetings to obtain formal approval.
An update provided by Evergrande in April revealed that the plan still lacked the necessary support from a crucial group of creditors. As a result, the meetings have been rescheduled multiple times.
