On Monday, a Hong Kong High Court judge postponed a hearing to wind up China Evergrande Group (3333.HK) until December 4, giving the world’s most indebted property developer one more chance to come up with a restructuring plan or face liquidation.
Evergrande, which has more than $300 billion in obligations, defaulted on its offshore loan in late 2021, becoming the poster child for China’s property sector’s financial problem.
The next hearing, according to Justice Linda Chan, will be the final before a judgment on the winding up order is reached.
Evergrande needs to come up with a “concrete” amended restructuring proposal before that date, she warned, or the company will likely be closed down.
According to Chan, a liquidator might still negotiate with creditors on a reorganization and make headway toward a solution.
After falling as high as 23% in the morning session, the company’s shares recovered to 5% after the close on Monday.
‘THERE IS NO BETTER OPTION’
The property industry in China accounts for around a quarter of all activity in the world’s second-largest economy. Its difficulties have jolted global markets and spurred Beijing to take a flurry of measures to reassure investors and homeowners.
A liquidation of Evergrande, which had total assets of $240 billion as of the end of June, would send shockwaves through already unstable capital markets, but would have minimal immediate impact on the company’s activities, including its numerous house construction projects.
Evergrande had been working on a $23 billion offshore debt restructuring plan when its billionaire founder Hui Ka Yan was discovered to be under investigation for possible criminal acts last month.
Evergrande was prevented by mainland regulators from issuing new dollar bonds, a critical component of the restructuring plan, due to an inquiry into its flagship property arm. It canceled creditor elections that were supposed to take place late last month.
On Monday, Evergrande’s lawyer told the court that the company intends to revise the restructuring proposal in order to “monetise the value” of its two Hong Kong-listed subsidiaries, Evergrande Property Services Group (6666.HK) and Evergrande New Energy Vehicle Group (0708.HK), which are not subject to the regulatory hurdles.
The March restructuring proposal was presented to creditors as a package of alternatives for swapping debt for new bonds and equity-linked instruments backed by the firm and the two businesses, but sources claimed it did not receive enough support from one class of creditors.
During the hearing, a lawyer representing Evergrande’s principal bondholder group stated that the group supported the adjournment since a restructuring plan may result in a higher recovery rate for creditors than a liquidation scenario of less than 3%.
Evergrande did not react to a comment request.
“I don’t think anyone wants to see it go away.” But, for the time being, we don’t see a better choice being presented by Evergrande, so the likelihood of it being wound up is still strong,” said a bondholder who requested anonymity because they were not authorized to communicate with the media.
Top Shine, a stakeholder in Evergrande affiliate Fangchebao, filed the winding-up petition in June 2022 after Evergrande failed to honor a buyback deal.