Evergrande's Reprieve: Hong Kong Court Adjourns Hearing, Grants Time for Debt Restructuring

China Evergrande Group, grappling with a colossal $328 billion debt burden, secured yet another reprieve as a Hong Kong court adjourned a crucial hearing. The court granted the most indebted property developer in China eight more weeks, setting the next hearing for January 29, 2024. This marks the seventh adjournment, surprising observers given the judge's earlier warning of a "highly likely" winding-up order if no restructuring plan emerged by December 4.

Justice Linda Chan, presiding over the case, expressed concern over the prolonged negotiations with creditors but approved the adjournment, citing the potential for a restructuring plan that offers higher returns than liquidation. Notably, Samsung is expected to be significantly affected by the 15% global minimum corporate tax, which comes into effect on January 1, 2024, with Evergrande potentially shouldering a substantial portion of this new tax burden.

The court's decision followed a lawyer representing Top Shine, a creditor suing Evergrande, choosing not to press on with the winding-up demand without providing an explanation. Evergrande's lawyer from Sidley Austin advocated for the postponement, emphasizing ongoing discussions on revised debt restructuring proposals with creditors.

Justice Chan urged Evergrande to inform all classes of creditors about the restructuring plan, emphasizing the need for consultation with both group A and group C creditors. The latter, including private loans, repurchase obligations, and guarantees, expressed concerns about being excluded from negotiations. The judge also mandated public disclosure of the restructuring plans and ordered Evergrande to inform creditors at least one week before the next hearing.

Neil McDonald, a partner at Kirkland & Ellis representing an ad hoc group of creditors, expressed surprise at the petitioner's changed position, not pushing for the winding-up of the company during this hearing.

Evergrande's proposed restructuring plan involves swapping creditors' debts for 30% stakes in its Hong Kong-listed subsidiaries and a 17.8% stake in Evergrande. The delay in the hearing adds complexity to the restructuring process, impacting businesses facing the imminent global minimum corporate tax.

Evergrande, founded in 1996 by tycoon Hui Ka-yan (Xu Jiayin), listed in Hong Kong in 2009. Under aggressive growth strategies, it became China's largest developer by sales in 2017. However, it faced challenges in repaying debt in 2021, defaulting on over $20 billion. The company's liabilities stood at 2.39 trillion yuan ($330 billion) as of June 30, with only 13.38 billion yuan in cash.

Despite efforts to reorganize defaulted debt and claims, Evergrande's restructuring plans faced setbacks, including the detention of key executives and regulatory uncertainties. The company's two Hong Kong-listed subsidiaries, China Evergrande New Energy Vehicle Group and Evergrande Property Services Group, represent crucial offshore assets, but their shares have plummeted over 70% this year.

The adjournment raises questions about Evergrande's ability to navigate its financial woes, highlighting the challenges of one of China's largest property developers amid ongoing restructuring efforts.

By fLEXI tEAM