Evergrande dollar debt revamp plan fails to cheer investors

China Evergrande Group’s offshore debt restructuring proposal, a test of investor sentiment towards the cash-squeezed property sector, failed to impress because of its long repayment period and lack of enough sweeteners, creditors and analysts said.

Evergrande is the world’s most indebted developer, with around US$300 billion in liabilities. Its offshore debt restructuring, the country’s biggest such exercise, is aimed at saving it from a disorderly collapse.

The developer has US$22.7 billion of offshore debt, all of which is deemed to be in default. The plan provided two main options to its dollar bondholders to recoup their investments.

Creditors can either swap all of their holdings into new notes with maturities of 10 to 12 years, or convert them into different combinations of new notes with tenors of five to nine years and equity-linked instruments.

Bondholders of notes issued by Evergrande’s offshore units will also be allowed to exchange their existing debt for new notes, which will start paying coupons from the fourth year after issuance.

The outcome of Evergrande’s debt revamp plan is likely to have a bearing on similar proposals being worked on by a string of other Chinese developers that have defaulted on repayment obligations in the last year.

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An index tracking mainland-based property developers slipped 0.5 per cent in early afternoon trading on Thursday, while the broader stock benchmark index added 1.3 per cent. Trading in Evergrande shares remain suspended.

“Overall we are not very satisfied with it, since there is no more credit enhancement and the new tenors are too long,” Sunny Jiang, head of fixed income investment with Haitong International Asset Management, said of the Evergrande plan.

“If this plan gets passed, we worry it might set a bad example for other developers mulling their restructuring proposals, and it might be even more challenging for bondholders to recoup their investment,” he added.

Evergrande did not respond to a request for comment.

Some bondholders have been pushing Evergrande to sweeten the restructuring deal with domestic assets, but Wednesday’s proposals did not include such terms.

A dollar bondholder, who was not authorised to speak to media, likened the debt restructuring plan to lending a bucket of rice to someone and being repaid with two grains a year.

More developers are likely to use the strategy of wearing out investors’ patience before offering a restructuring plan that is unfavourable to creditors, said an investor in Chinese property dollar bonds who no longer owns Evergrande bonds and was not authorised to speak publicly.

Another creditor said the proposal was built on assumptions including that Evergrande and its two Hong Kong-listed units could resume trading and sustain their businesses despite the lack of funding.

Evergrande said on Wednesday that additional financing of 250 billion yuan (S$48.5 billion) to 300 billion yuan would be required as it resumes operations over the next three years.

China Evergrande New Energy Vehicle Group said on Thursday it might have to halt production of electric vehicles if it could not obtain fresh funding.

If Evergrande fails to push ahead with restructuring plan, the developer may have to face liquidation proceedings filed by an investor in one of its units in a Hong Kong court.

A representative of Evergrande’s winding-up petitioner Top Shine Global told Reuters on Thursday that the investment firm was still studying the proposal to see if it would support the plan or continue to push ahead with the liquidation request.

Evergrande, however, citing an analysis it commissioned, said the recovery for offshore creditors in a group-wide liquidation is expected to be less than US$1.5 billion, a rate of 2.1 per cent to 9.3 per cent depending on the type of debt held. REUTERS