China Evergrande secures payment extension as developers seek to avert default

FILE PHOTO: The China Evergrande Centre building sign is seen in Hong Kong, China. August 25, 2021. REUTERS/Tyrone Siu/File Photo

China Evergrande Group on Thursday secured approval from onshore bondholders to delay payments on one of its bonds, as other cash-strapped developers also scrambled to negotiate new terms with creditors to avoid defaults.

Struggling with more than $300 billion in liabilities, sector giant Evergrande was seeking more time for bond coupon and redemption payments to avoid a technical default that would have complicated its politically sensitive restructuring.

The deadline to vote on the six-month delay in the redemption and coupon payments of the 4.5 billion-yuan ($157 million) bond ended earlier on Thursday.

In a statement late on Thursday, the developer’s main unit Hengda Real Estate Group said that it had reached an agreement with bondholders to delay payments.

Of those who voted, 72.3% approved the proposal to extend the maturity, the statement said.

Evergrande, the world’s most indebted property company, has so far met payments on onshore bonds that make up the vast majority of its debt, though it has defaulted on some offshore bonds.

Chinese developers are facing an unprecedented liquidity squeeze due to years of regulatory curbs on borrowing, leading to a string of offshore debt defaults, credit-rating downgrades and sell-offs in developers‘ shares and bonds.

The World Bank’s economic prospects report said earlier this week a severe and prolonged downturn in China‘s real estate sector would have significant economy-wide reverberations, as its developers‘ combined onshore and offshore liabilities amount to almost 30% of the country’s GDP.

Shanghai-based Shimao Group will hold online meetings with creditors in two asset-backed securities (ABS) on Jan. 17, to vote on payment extension proposals, according to documents seen by Reuters on Thursday.

The two onshore ABS products – worth 1.17 billion yuan ($183.91 million) in total – are to mature later this month, and Shimao is seeking to extend the maturities to the end of 2022 while making some payments in stages before the new deadline.

Shimao last week said it has missed payment on a $101 million trust loan. Rating agency S&P, which has downgraded the firm again to “B-” this week, said on Thursday it has withdrawn the rating at the firm’s request.

Shimao’s onshore subsidiary Shanghai Shimao co confirmed on Thursday evening it has transferred funds to repay its 4.65% yuan bond with an outstanding principal of 1.9 billion yuan maturing on Saturday.

But the firm has yet to say anything on an offshore coupon payment worth $28 million due on the same day. Shimao has another offshore coupon of $13 million due on Sunday and an onshore coupon of 22.5 million yuan due next Wednesday.

Separately, Yuzhou Group, founded in the eastern coastal city of Xiamen, also announced an exchange offer for two of its 2022 dollar bonds due later this month – worth a total of $582 million – to extend the maturities by one year to avoid default.

It expects a delay in coupon payments totalling $110 million that are due in January and February, Yuzhou said in a filing. It is also seeking consent from holders of all of its other $4.5 billion dollar bonds to amend the terms that would help it avoid cross defaults if other bondholders seek repayment.

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Nomura estimates the sector’s cash crunch could intensify with firms needing to meet onshore and offshore maturities totalling around 210 billion yuan each in the first and second quarter, up from 191 billion yuan in the fourth quarter of 2021.

Developers are also desperately raising funds to repay debt.

Major player Sunac China Holdings Ltd said on Thursday it would raise $580.1 million from a share sale.

A source close to Sunac told Reuters the company has no further plan in the near term to place its shares or shares in unit Sunac Services to raise capital, adding it has sufficient funds to meet debt payment obligations due in the short term and for project development.

Separately, smaller developer Agile Group pledged 65.6 million shares of its property management unit, A-Living Smart City Services, on Jan. 6 for an unspecified amount, stock exchange filing showed.

Shares of Chinese developers generally closed down on Thursday, with Sunac and Agile tumbling 22.6% and 13.3%, respectively. Shimao fell 9.4% while Yuzhou shed 6.9%. Evergrande dropped 3.6%.

One of Yuzhou’s yuan-denominated bonds tumbled 21.8% in the morning before it was ordered to temporarily halt trading.

Two Shanghai-traded bonds of Shanghai Shimao were also suspended but after surging over 30%.

Reuters 

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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.