The debt crisis surrounding China Evergrande Group has taken a more severe turn as the nation's capital-market regulators have halted the developer's efforts to stave off bankruptcy by preventing it from issuing new debt to repay approximately $20 billion to offshore creditors.
The developer disclosed that it failed to meet the administrative measures imposed by the China Securities Regulatory Commission and the National Development and Reform Commission for issuing new notes as part of its workout plan. This setback is linked to an "investigation" involving its key onshore unit, Hengda Real Estate Group.
Evergrande's Chairman and Founder, Hui Ka-yan, stated in a filing to the Hong Kong stock exchange, "The group is unable to meet the qualifications for the issuance of new notes under the present circumstances." The administrative measures were connected to the sale and listing of securities by local companies in offshore markets. Following this announcement, Evergrande's shares plummeted by as much as 24%, eventually settling at a decline of 18% to HK$0.45.
The ongoing investigation into Evergrande's onshore unit, Hengda Real Estate Group, by securities regulators centers around suspected violations of information disclosure. Additionally, the unit faces a growing number of lawsuits from creditors, totaling 12.6 billion yuan (approximately $1.7 billion) of debt, and other cases aimed at freezing its assets.
Gary Ng, a senior economist at Natixis, a French investment bank, noted, "If Evergrande cannot issue debt, it can drag the restructuring progress and can harm investors’ confidence significantly. I do not think creditors’ hope is fully gone, but it will not be a plain sailing journey."
As part of its restructuring proposal, Evergrande had offered new long-term bonds, convertible debt, and stakes in its property management and car-making units to appease creditors. The company had aimed to secure full creditor agreement by October 1 and implement the terms by December 15.
Evergrande initiated efforts to reorganize its 2.4 trillion yuan ($373 billion) of liabilities in September 2021 after Beijing introduced its "three red lines" policy in August 2020 to curb excessive leverage in the real estate sector. This policy significantly impacted the industry, and many developers have struggled to recover.
The recent developments represent a series of setbacks for offshore creditors, as Evergrande's flagship entity unexpectedly canceled six creditor meetings scheduled for the week, citing weaker-than-expected sales and the need to reassess the restructuring terms. Although Evergrande did not provide the latest sales figures, other indebted peers in the Chinese property market have reported declining sales in recent months, despite government efforts to stimulate home purchases.
Louis Tse Ming-kwong, Managing Director of Wealthy Securities, expressed concerns about the situation, stating, "It is quite worrying. If Evergrande is unable to comply in the coming days, it’s quite serious and will dampen sentiment on the property market."
By fLEXI tEAM