China’s most indebted real estate giant Evergrande pulls back from brink

30 Sep, 2020 05:55
source: Singularity Financial

Singularity Financial Hong Kong September 30, 2020 – Relief over China’s most indebted realtor Evergrande’s announcement late Tuesday in Hong Kong helped propel one of the company’s dollar bonds to its biggest gain since March, though at 80 cents on the dollar it was still trading slightly lower than before investor angst exploded to the fore on Thursday.

Last Friday the company’s stock tumbled 9.5% after reports that China Evergrande Group had warned provincial officials of a liquidity squeeze, citing its obligation to return money to some strategic investors if it failed to win approval for a backdoor listing of its main real estate assets in China by Jan. 31.

After a turbulent few days during which banks, the developer said it reached an agreement with a group of strategic investors to avoid repayments that would have placed a sizable strain on the junk-rated company’s balance sheet.

According to Bloomberg, the deal buys crucial time for Evergrande to rein in a complex web of liabilities that some analysts have said makes the property behemoth too big to fail. Evergrande owes $88 billion to banks, shadow lenders and individual investors across China and has borrowed $35 billion from bondholders around the world. More than 2 million homebuyers have given the company down payments on yet-to-be-completed properties.

Evergrande has an expansive reach in the onshore property market, owning more than 870 projects in at least 280 cities across all provinces and regions. It recently put 223 properties in 111 cities up for sale with big discounts to lure buyers and enhance its cash flow amid a market slowdown.

Shenzhen Special Economic Zone Real Estate & Properties (Shenzhen SEZ), which is supposed to buy Evergrande’s unit Hengda Real Estate, suggested that it would not rush into an agreement despite four years having passed since the plan was first mooted.

“The business reorganisation involves a state-owned company and the structure of the deal is quite complicated,” the firm said, in an exchange filing on Sunday. “It is an important deal which has no precedent. The plan needs further discussion.”

The deal will require the consent of shareholders and at least five other regulatory authorities, including China’s antitrust agency, according to past exchange filings.

Evergrande said Tuesday that investors holding equity stakes worth about 86.3 billion yuan ($12.7 billion) agreed to keep their shares and not require the company to buy them out. That group represents the majority of the 130 billion yuan in shares held by strategic investors in its Hengda Real Estate unit, who could demand repayment in January under certain conditions.

Evergrande is in talks with the remaining investors on similar deals. The developer has finished negotiations with investors holding 15.5 billion yuan of equity interests, who are seeking further approvals. Talks with investors holding the remaining 28.2 billion yuan are ongoing.

It’s unclear whether China’s authorities played any role in the agreement.