Evergrande creditors fear looming default as concerns rock industry

SHANGHAI / SINGAPORE / HONG KONG – China Evergrande Group’s offshore bondholders fear it is on the verge of defaulting on their debts and want more information and transparency from short-lived property developer money, their advisers said.

Evergrande, which could trigger one of China’s biggest defaults as it grapples with over $ 300 billion in debt and whose problems have already sent shockwaves through global markets, missed payments on dollar bonds, with a combined value of $ 131 million, which were due on September 23. and September 29.

With Evergrande keeping silent on dollar debt payments and prioritizing onshore creditors, offshore investors are wondering if they will face significant losses at the end of the 30-day grace periods for monthly coupons. latest.

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A group of bondholders turned to investment bank Moelis & Co and the law firm Kirkland & Ellis for advice.

Offshore bondholders want to engage “constructively” with the company, but are concerned about the lack of information from what was once China’s best-selling real estate developer, said Bert Grisel, chief executive of Moelis based in Hong Kong.

“We all believe that an impending default on offshore bonds is or will occur within a short period of time,” Grisel said on a call with bondholders on Friday.

“Unfortunately, so far we have had a few calls with the advisers,” but there has been no “meaningful dialogue with the company or providing information,” he said.

Evergrande, which faces nearly $ 150 million in offshore payment obligations next week, did not respond to a request for comment from Reuters.

Neil McDonald, a restructuring partner at Kirkland & Ellis’ Hong Kong office, said bondholders want more transparency and hope Evergrande will meet disclosure obligations under the listing rules.

Offshore bondholders are also asking for more information on Evergrande’s plan to divest some companies and how the proceeds would be used, the advisers said, adding that the group of creditors they represent was in full swing. growth.

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Both advisers said that, including parties who have expressed interest in being part of the group, they represent bondholders who currently hold $ 5 billion in nominal Evergrande offshore bonds.

Evergrande announced last month that it would sell a $ 1.5 billion stake it owns in Shengjing Bank Co Ltd. The bank, one of Evergrande’s main lenders, demanded that the money from the sale be used to settle the developer’s debts with Shengjing.

Trading in Evergrande shares has been halted since Monday pending an announcement of a major deal. The marketing of its Evergrande Property Services Group unit has also been stopped.

The state-backed Global Times said Hopson Development will acquire a 51% stake in Evergrande Property for more than HK $ 40 billion ($ 5.1 billion), citing other reports. Press.

“While we don’t want to exaggerate this, we are obviously making contingency plans right now to ensure that there is no dissipation of assets,” said McDonald.

“And if there is such activity, we will be ready to take steps to protect the rights and interests of American creditors, and we really hope it is not necessary,” he added.

Advisors to the Evergrande offshore bondholders had contacted the developer on September 16, but had not received any assurances from the developer, demanding more transparency.

WEAKNESS OF THE SECTOR

In another development, Evergrande’s dollar bond administrator Citi has hired law firm Mayer Brown as an advisor, a source familiar with the matter told Reuters on Friday, who declined to be named. because of the sensitivity of the case.

Citi and Mayer Brown declined to comment.

The possible collapse of one of China’s largest borrowers has raised concerns about the risks of contagion in the world’s second-largest economy, with other indebted real estate companies hit with downgrades following looming defaults.

With little clue as to how local regulators are proposing to contain the Evergrande contagion, the price of bonds and stocks of Chinese real estate developers fell again on Friday.

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“The potential lack of transparency and clarity leaves investors more nervous and it will be very difficult for people to want to refinance any debt maturing in this particular industry,” said Cliff Corso, chief investment officer of Advisors Asset Management.

A Chinese real estate sector index fell 1.53%, compared to a 1.31% rise in blue-chip stocks.

The Shanghai Stock Exchange on Friday suspended trading in two bonds issued by smaller developer Fantasia Group China Co, one that fell more than 50%, after majority shareholder Fantasia Holdings Group missed the deadline on Monday. ‘a debt payment of 206 million dollars on the international market.

Fantasia Holding said in a stock exchange report on Friday that it had appointed Houlihan Lokey and Sidley Austin as advisers to assess its capital structure, assess liquidity and explore solutions to alleviate its current liquidity problem.

Most Evergrande and Fantasia bonds have already lost around 80% of their value.

Meanwhile, bonds issued by Greenland Holdings, which built some of the tallest residential towers in the world, including in Sydney, London, New York and Los Angeles, and Kaisa Group both suffered another blow on Friday.

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“Market players are wondering if this may be a precursor to voluntary defaults by other developers with healthy short-term liquidity positions, but significant unsustainable long-term debt,” said Chang Wei Liang, credit strategist. and currencies at DBS Bank, in a note. .