Advisers to Evergrande, bondholders take step towards debt talks

ADVISERS representing China Evergrande Group and a group of its offshore bondholders have taken what's often a first step towards negotiations as the embattled developer faces a cash crunch, said sources. Company advisers Houlihan Lokey and Admiralty Harbour Capital along with offshore bondholder advisers Moelis & Co and Kirkland & Ellis, signed non-disclosure agreements in preparation for potential talks, the sources said.

The ad hoc bondholder group's advisers are seeking to exchange information with the company, including the status of various projects, liquidity and asset valuation, after earlier outreach attempts were rebuffed. Since then, Evergrande's cash problems have deepened after it scrapped talks to sell a stake in its property-management arm.

The creditors have been trying to engage with Evergrande since mid September, sending letters asking for information about the company's situation and seeking assurances that management won't sell offshore assets while debt solutions are being discussed.

The developer made an overdue interest payment on a dollar bond before a grace period expired and secured a three-month extension on its US$260 million dollar bond issued by Jumbo Fortune. Investors are now eyeing the end of a grace period on another Evergrande dollar bond later this week.

The 30-day grace period on Evergrande's US$45.2 million coupon payment that was initially due Sep 29 is set to end on Friday (Oct 29). The closely-watched deadline comes amid a sell-off in Chinese junk bonds that was paced on Thursday by Kaisa Group, one of the property sector's largest issuers of dollar debt.

Evergrande surprised some investors last week by paying another overdue coupon at the tail-end of the grace period. The company's dollar notes remain at distressed levels as creditors brace for an eventual debt restructuring that could rank among the largest ever in China.

Evergrande has a host of upcoming coupon deadlines. It's late on interest payments for at least two other notes and has another four due through the end of the year. Its next major maturity is on a US$2 billion dollar bond due March.

Meanwhile, local governments are monitoring Evergrande's bank accounts to ensure that company cash is used to complete unfinished housing projects and not diverted to pay creditors. BLOOMBERG