- The firm had said in January that the proposal would come within 6 months
- It will not meet March 31 deadline for audited 2021 results
- Planned deal with CITIC Trust, Guangzhou could provide the model
After concerns about its financial health were renewed by a delay in publishing its annual results, embattled China Evergrande Group (3333.HK) said on March 22 that by the end of July it will unveil a debt restructuring proposal for its creditors.
Its executive director Siu Shawn told investors on a call that for the developer to reach the end-July target, Evergrande, whose $22.7 billion worth of offshore debt is deemed to be in default, is seeking to “further enhance communications” with creditors.
In a stock exchange filing earlier on Tuesday, Evergrande said that since audit work had not been completed, it would not meet a March 31 deadline to file its financial results for 2021.
Within six months, the world’s most indebted property developer, Evergrande aimed to have a preliminary restructuring proposal in place, as it had told investors in January.
Investors are still in the dark over whether they will recoup their money, even though state intervention has quelled market concern over a disorderly collapse of Evergrande. Nonetheless, investors have been rattled by a wave of defaults in China’s property sector.
In December, Evergrande, once China’s top-selling developer and now reeling under more than $300 billion in liabilities, defaulted on some overseas bond payments and has struggled to complete homes and projects and to repay creditors and suppliers.
The Guangdong provincial government is leading the restructuring and a risk management committee consisting mostly of members from state enterprises was set up by the developer.
Chen Yong, a member of the committee, told investors:
“With the broad support and understanding from the majority of creditors … we strive to release the preliminary restructuring proposal by the end of July.”
Evergrande board member Liang Senlin said that the developer is working to sell the Evergrande Centre commercial building, as well as its Yuen Long land parcel in Hong Kong as part of its plans to divest assets to repay some of its offshore debt.
Since March 21, trading in shares of Evergrande, electric vehicle unit China Evergrande New Energy Vehicle Group Ltd (0708.HK) and its property services unit Evergrande Property Services Group Ltd (6666.HK) have been halted.
To restore value in both the electric vehicle and property services units, Liang said on the investor call that the developer was trying to rope in strategic investors – a goal it has been pursuing without much success for roughly a year.
After getting approval to start sales last week, the EV unit aimed to start mass production in June of its inaugural electric car, the Hengchi 5 sport-utility vehicle, Siu said.
The assurances from management did not impress some of the investors who attended the call. One bondholder who was on the call stated:
“They mainly explained why the trading of stocks is suspended. There was no new information and the situation remained the same.”
The bondholder declined to be named as he was not authorized to speak to the media.
A MODEL TO FOLLOW?
Evergrande planned to return land used as collateral for a trust loan to the Guangzhou government, two sources familiar with the matter told Reuters earlier on Tuesday. This strategy provides a model for local authority involvement that could be replicated for other indebted Chinese property firms.
The deal centers around a 3.25 billion yuan ($510.73 million) trust loan that was issued to Evergrande by CITIC Trust using funds raised from investors, according to a document reviewed by Reuters partially outlining the plan and the sources.
The sources said that the land used as collateral, under the plan, will be returned by CITIC to Evergrande, which will then be passed to the Guangzhou city government for sale.
The role of the guarantor of the loan will be played by the State-owned Guangzhou City Construction Investment group and CITIC will use funds from the Guangzhou city government to repay the principal amount to investors within two years.
One of the people said that the investors of the trust are yet to approve the plan. Analysts said that this model of local government and creditors working together to resolve Evergrande’s debt repayment issue, if successfully implemented, could be replicated for other trust loans, and more state-owned city investment companies may become involved in the firm’s debt restructuring process.
Guangzhou City Construction Investment, Evergrande, and CITIC did not respond to requests for comment. An important source of funding for Evergrande and other property developers in China is trust companies, which pool money from wealthy investors.
An investigation into how banks seized 13.4 billion yuan in deposits that had been pledged as security for third party guarantees had been launched by Evergrande’s Property Services Group, the developer said in a separate filing on March 22.
The turmoil at Evergrande, which said it would hire King & Wood Mallesons as an additional legal adviser, is emphasized by the seizure of funds, which the property services unit discovered when it was preparing its annual report.