China’s Evergrande Group, whose collapse in 2021 sparked China’s worst property market crisis on record, has unveiled a multi-billion dollar restructuring plan to make peace with its international creditors.
The long-awaited plan could set an important precedence for investors dealing with the growing defaults and restructuring in China’s real estate industry. With more than $270 billion in total liabilities, Evergrande’s debt restructuring is also the country’s largest on record and will have broad implications for its financial markets.
Evergrande has reached “binding agreements” with its international bondholders on the key terms of its restructuring plan, the company said late Wednesday in a 200-page filing.
These bondholders hold $19.15 billion of US dollar-denominated notes that Evergrande had previously issued. They account for 84% of the company’s offshore debt, which is $22.7 billion.
That means most of the company’s international creditors have agreed on the deal.
“The proposed restructuring will alleviate the company’s pressure of offshore indebtedness and facilitate the company’s efforts to resume operations and resolve issues on shore,” Evergrande said in the filing.
The company offered two main options for its international creditors. They can swap their holdings into new notes with a 10 to 12 year maturity or convert them into different combinations of new notes with a five to nine year maturity and equity-linked instruments.
Evergrande said it will focus on returning to normal operations in the next three years. That will require additional financing of 250 billion to 300 billion yuan ($36.4 billion to $43.7 billion) to resume work and ensure delivery of properties.
The company also warned its electric vehicle (EV) unit would face the risk of shutdown without new funding. If the unit can obtain over 29 billion yuan in financing, it plans to launch a number of flagship models and achieve mass production.
Evergrande was once China’s largest developer by sales. But it had borrowed so heavily that when China cracked down on leverage in the property sector in 2020, it failed to raise enough cash to repay creditors and suppliers.
In late 2021, Evergrande was declared by Fitch Ratings as defaulting on its US dollar bonds, which roiled financial markets and sparked fears about contagion.
Soon after its default, the government intervened to prevent a disorderly collapse of the property giant that could have crippled the industry and wreaked havoc on the Chinese economy. (Real estate and related industries account for as much as 30% of GDP.)
Still, a liquidity crunch spread, with a number of prominent developers defaulting on their debt too, hurting homeowners and sinking buyers’ confidence.
The Chinese property market has since entered a deepening downturn, compounded by the fallout of stringent pandemic controls and an economic slowdown.
After the government intervention, Evergrande has been in talks with its overseas creditors to try to reach an agreement, but has missed its self-imposed deadlines several times.
Some international creditors lost patience over the “opaque” restructuring process.
In June, an Evergrande investor filed a lawsuit in Hong Kong seeking to wind up the company, which forced its hand. Earlier this week, Evergrande said at a court hearing in the city that it would publish details of the restructuring plan on Wednesday.