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Evergrande offers sweetener for debt revamp as China property crisis worsens

·4 min read
FILE PHOTO: Partially removed company logo of China Evergrande Group in Shenzhen

By Clare Jim and Xie Yu

HONG KONG (Reuters) - China Evergrande Group will offer its offshore creditors asset packages that may include shares in two overseas-listed units as a sweetener, the developer said on Friday, as a stifling liquidity crisis in the property sector continues.

The two listed units are Evergrande Property Services Group Ltd and electric vehicle maker China Evergrande New Energy Vehicle Group Ltd, the embattled developer said in an update on its preliminary restructuring proposal, a move that was widely expected by creditors.

Evergrande's restructuring proposal, which was thin in details, comes as China's property sector, a key pillar for the world's second-largest economy, lurches from one crisis to another. The sector has seen a string of debt defaults by cash-squeezed developers.

With more than $300 billion in liabilities, Evergrande, once China's top-selling developer has been at the centre of the crisis and its debt restructuring plan is seen as a possible template for others.

A person familiar with the restructuring plan separately told Reuters Evergrande aimed to wrap up group due diligence work next month before starting negotiations with creditors on specific terms.

The developer's goal is to present by November a restructuring plan with more details and which would have key creditors' approval, said the person, declining to be named as he was not authorised to speak to the media.

Evergrande declined to comment.

On Friday, Evergrande said in the restructuring update that the due diligence process was continuing, given the group's size and complexity and the "dynamics the group finds itself in".

It expected due diligence work on the group to be completed in the near future, and aims to announce a specific plan in 2022.

The world's most indebted property developer's entire $22.7 billion worth of offshore debt including loans and private bonds is deemed to be in default after missing payment obligations late last year.

The developer began talks with offshore creditors about the restructuring proposal earlier this year, after advisers for a group of offshore bondholders demanded more transparency from the developer.

Some bondholders were left unimpressed by the update on Friday.

"It is disappointing but sort of expected... There is nothing they could offer because we all know the company is pretty much a zombie now," said one onshore Evergrande bondholder.

The bondholder said he had been following developments related to the offshore restructuring to get clues on what Evergrande might do with its onshore debt. He declined to be named as he was not authorised to speak to the media.

RESUMING WORK

Last week, the developer said a preliminary probe found 13.4 billion yuan ($1.99 billion) in deposits in Evergrande Property Services were used as collateral for pledge guarantees to facilitate financing by the group and seized by banks.

The seized amount could wipe out most of the cash the unit was holding, analysts had said.

Evergrande is pushing ahead with the disposal of its Hong Kong headquarters via a tendering process that ended this week, another source said. The sale proceeds of the Hong Kong tower would be used to repay offshore creditors.

In its Friday statement, Evergrande expected it would take a relatively long time for the business to restore orderly operations and asset value for all stakeholders, due to the state of the real estate markets in China and the overall size of the company's assets and liabilities.

It posted contracted sales of 12.3 billion yuan in the first six months, compared to 356.8 billion yuan a year ago, and resumed construction of 96% of its pre-sold and undelivered projects.

In a separate statement on the company website, Evergrande said company sales have "gradually restored" since March as homebuyers regained some confidence after it guaranteed home delivery.

It has also acquired new financing of 2.57 billion yuan ($381.12 million) in the first half of the year.

Evergrande said it cut management staff at its headquarters by 67% to 712 people and at the local project level by 54% to 776 people to cut costs.

China's economy, of which the property sector accounts for a quarter, only narrowly missed a contraction in the second quarter. A growing revolt by homebuyers this month who are threatening to stop paying mortgages on unfinished projects, has further clouded the outlook for the sector.

Evergrande said it was making its "best effort" to resume work and construction and the group had "partially or completely resumed" construction of 96% of its pre-sold and undelivered projects.

($1 = 6.7433 Chinese yuan renminbi)

(Reporting by Clare Jim, Xie Yu, Sameer Manekar; Editing by Sumeet Chatterjee, Elaine Hardcastle and Deepa Babington)