Evergrande: Debt restructuring inevitable – ‘Deep haircut’ and portfolio sales on the horizon

Της Yue Wang

Chinese billionaire Hui Ka Yan faces new pressure to accelerate $ 305 billion restructuring of Evergrande’s liabilities Fitch Ratings downgrades real estate firm to restricted default (selective bankruptcy), after the non-payment of two coupons that expired on November 6.

The house said there was no announcement from the company or the administrator about the payment of the coupons even after the 30-day grace period had expired – on December 6 – and Evergrande did not respond to a request for information. “Therefore, we assume they were not paid,” Fitch wrote in a note posted online last week.

According to analysts, the bankruptcy of Evergrande has been expected for a long time and the scenario has already been priced in the “problem” bonds and in its share that follows a “free fall”. The Hong Kong-listed construction company, which has not responded publicly to the Fitch report, will not be able to keep quiet for long.

“Until now, Evergrande has been able to save time and negotiate individually with creditors,” said Zhou Chuanyi, a Singapore-based Lucror Analytics analyst. “If it goes bankrupt, then debt restructuring is inevitable.”

The company did not respond to a request for comment received by Forbes via email. Last week, Evergrande announced that it had set up a Risk Management Committee consisting of Hui himself, executives of Guangzhou-based consortia, and Cinda, the state administrator of “red” loans, to help “reduce and eliminate future of risks for the Group “.

Warut Proomboon, chief executive of Hong Kong-based credit research firm Bondcritic, says the long and arduous restructuring process could begin with the sale of some non-core portfolios. During the period of its expansion, which “inflated” the debts, Evergrande also acquired companies that are not related to the real estate development sector. The Club continues to participate in a football team as well as in a mineral water trading company. In November, it sold its remaining stake in streaming service provider Hengten Networks for $ 273 million, after reducing its stake in the company in August to raise $ 418 million.

For its part, the Chinese government has not shown much interest in rescuing Evergrande immediately, but wants to protect the interests of Chinese home buyers. Officials in Evergrande-based Guangdong Province and other government agencies are “directing and urging” the Group to “continue and complete the construction of homes to be handed over to buyers,” the China Banking and Insurance Supervisory Authority said in a statement. days.

Meanwhile, the holders of the company’s securities in dollars are preparing for a “deep haircut”, since according to analysts they can get back only 30% to 60% of their money. Hui, whose fortune is now valued at $ 9.1 billion – mainly from dividends he has received from the Group over the years – has channeled $ 1 billion of his personal fortune into the Evergrande to boost its liquidity. , according to Chinese state media. In November, Chinese billionaire also raises $ 343 million by selling Evergrande shares for the first time since its listing in 2009. Huey is believed to have sold personal assets at the behest of government authorities, in the process helping Evergrande to respond in a timely manner to the timely payment of coupons.

Even if Evergrande formally enters a restructuring process, pressure on Hui – to sell other personal assets – is likely to continue. “Government pressure remains,” says Zhou of Lucror Analytics. “We do not know how far Beijing is going and how the negotiations are going, but we can not rule out the possibility that Hui will agree.”

Read also:

* Fitch Ratings: Evergrande and its subsidiaries in “selective bankruptcy”

* Failure to pay a dollar bond for the first time by Evergrande