Evergrande plans debt restructuring

Chinese real estate group Evergrande is planning what could turn into the biggest debt restructuring in China that would pool all of its offshore obligations, according to press reports.

The company’s difficulties, with a debt of over US$300 billion (R$1.7 tri), have caused unrest in the markets and for the whole of China’s economy, which has 25% of its wealth coming from the real estate sector.

The grace periods to pay interest on two US$ 82.5 million (BRL 469.1 million) bonds ended on Monday (6) and, if they were not fulfilled, would be the group’s first non-payment which has so far managed to avoid bankruptcy.

Evergrande has a grace period of one additional month to rectify your situation.

According to Bloomberg, several foreign creditors have not yet been paid.

Back in September, the group failed to meet several deadlines and suspended its listing on the Hong Kong Stock Exchange. But Evergrande managed to repay its creditors before the grace period ended.

Confident of its financial strength, Evergrande has invested in a multitude of sectors in recent years (tourism, digital, health insurance and electric vehicles), which partly explains its abysmal debt.

But Chinese officials, concerned about rising real estate debt, last year imposed prudential ratios on developers to curb their recourse to borrowing.

This regulatory tightening marked the beginning of financial problems for Evergrande.

In September, the company admitted for the first time that it might not be able to honor all of its commitments.

And, rare in China, dozens of injured homeowners, having not received delivery of their apartment, protested for several days in front of the group’s headquarters in Shenzhen (south).

As part of the restructuring, Evergrande announced on Monday night the creation of a “crisis management committee”, made up of seven people (two executives from the group and five directors of state entities).

The committee was created “in light of the operational and financial challenges” facing Evergrande, according to a statement sent to the Hong Kong Stock Exchange.

The creation of the body indicates a greater involvement of the Chinese government, which a few days ago summoned Evergrande executives after they said they could run out of resources to fulfill their obligations.

The provincial government of Guangzhou will send a work team to the company, which analysts at consultancy Jefferies interpreted as “a possible takeover of Evergrande”.

The measure seems to have calmed, for now, the markets: Evergrande shares rose on Tuesday (7) 1% in Hong Kong, after a drop of 14% the day before.

Investors also took note of the government’s “support” for the real estate sector after a meeting chaired by Head of State Xi Jinping.

Three days earlier, Evergrande had warned him yet again that he might not be able to meet his financial obligations.

The government intervention marks “the official start of Evergrande’s debt restructuring”, believes analyst Lu Ting of investment bank Nomura.

In addition, Bloomberg News Agency reported that Evergrande planned to include the obligations of its public and private offshore bonds in a restructuring.