China Evergrande Group’s offshore debt restructuring proposal, a test of investor sentiment towards the cash-squeezed property sector, failed to impress because of its long repayment period and lack of enough sweeteners, creditors and analysts said.
Evergrande is the world’s most indebted developer with around $300 billion (€275 billion) in liabilities. Its offshore debt restructuring, the country’s biggest such exercise, is aimed at saving it from a disorderly collapse.
The developer has $22.7 billion of offshore debt, all of which is deemed to be in default. The plan provided two main options to its dollar bondholders to recoup their investments. Creditors can either swap all of their holdings into new notes with maturities of 10 to 12 years, or convert them into different combinations of new notes with tenors of five to nine years and equity-linked instruments.
Bondholders of notes issued by Evergrande's offshore units will also be allowed to exchange their existing debt for new notes, which will start paying coupons from the fourth year after issuance.
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The outcome of Evergrande's debt revamp plan is likely to have a bearing on similar proposals being worked on by a string of other Chinese developers that have defaulted on repayment obligations in the last year.
An index tracking mainland-based property developers slipped 0.5 per cent in early afternoon trading on Thursday, while the broader stock benchmark index added 1.3 per cent. Trading in Evergrande shares remain suspended.
"Overall we are not very satisfied with it, since there is no more credit enhancement and the new tenors are too long," Sunny Jiang, head of fixed income investment with Haitong International Asset Management Ltd, said of the Evergrande plan.
"If this plan gets passed, we worry it might set a bad example for other developers mulling their restructuring proposals, and it might be even more challenging for bondholders to recoup their investment," he added.
Evergrande did not respond to a request for comment.
If Evergrande fails to push ahead with restructuring plan, the developer may have to face liquidation proceedings filed by an investor in one of its units in a Hong Kong court.
Evergrande, however, citing an analysis it commissioned, said the recovery for offshore creditors in a group-wide liquidation is expected to be less than $1.5 billion, a rate of 2.1 per cent to 9.3 per cent depending on the type of debt held. – Reuters
