Evergrande filed preliminary proposals for the restructuring of its debt

China Evergrande Group, the world’s most heavily indebted construction company at the center of a wider debt crisis in China’s real estate industry, has presented preliminary proposals to restructure its offshore debt, Bloomberg reports.

The company said it may offer some assets outside China to repay creditors, including stakes in its electric vehicle and property management services arms. It added that it would try to announce a concrete restructuring plan within 2022, according to its briefing.

Evergrande had previously told investors it was on track to submit a preliminary restructuring proposal by the end of July after defaulting on dollar bonds late last year. The lack of further details is likely to disappoint creditors who had hoped for concrete measures to rescue the world’s most indebted manufacturer.

Evergrande’s fate has broader implications for China’s $50 trillion financial system. dollars, and could send ripples through banks, trusts and millions of homeowners.

The sheer size of its roughly $300 billion in liabilities has left global investors worried that a collapse could limit growth in the world’s second-largest economy, which depends on the housing market for about a quarter of gross domestic product.

The restructuring will include Evergrande’s offshore bonds, its subsidiaries’ loan obligations and repurchase obligations from unlisted online sales platform FCB Group, it said.

Evergrande says “the principle of fair treatment of creditors will be reflected in the restructuring proposal”.

The company’s CEO Shawn Siu said Evergrande will focus on completing construction projects and will not sacrifice the interests of onshore investors, according to an interview he gave to the 21st Century Business Herald. When asked why the restructuring plan fell short of market expectations, Siu said the company faced complex and difficult issues, asking for more patience.

The real estate giant’s liquidity fears began in 2020. It recently suffered the first rejection from its local creditors for extending a promissory note payment, which could lead to a landmark onshore bankruptcy. A number of other builders have added to their record defaults since last year after the government cracked down on excessive leverage and speculation in the housing sector.

President Xi Jinping’s government is trying to strike a balance between curbing debt at buyout and leveraged private companies while limiting the economic fallout.

Xi is seeking to curb burgeoning debt and the billionaire class as part of his “shared prosperity” campaign aimed at narrowing the wealth gap. This has led to a record wave of defaults on dollar bonds by contractors.

Liquidity crises have prompted builders to halt many projects across the country and leave dues unpaid. Unprecedented mortgage and loan boycotts by angry homebuyers and suppliers have broken out across the country.

In an example of how this is all spilling over, a group of small businesses and suppliers who said they would stop paying their own debts accused Evergrande of leaving them penniless.

“The whole pyramid is collapsing now,” said Anne Stevenson-Yang, co-founder of J Capital Research Ltd. “What’s different is that things are worse now because of the Evergrande crisis a year ago, which is spreading its tentacles throughout the Chinese economy.”