In China, Evergrande bond investors may suffer losses

The creditors of Evergrande, China’s second-largest real estate company, are still not aware of the problems arising from the restructuring plan announced on Friday (30).

What seems certain is that investors will have to accept heavy losses on the securities they have purchased.

Evergrande said it intends to have a clearer proposal for its restructuring by the end of the year, although there are few details released so far.

The only useful information disclosed is that the holding’s stakes in real estate services and electric vehicle units will be used to back debt.

This is not surprising, given that these assets are among those that Evergrande’s offshore investors have the clearest rights to.

The two companies listed separately in Hong Kong had a combined market value of about $7.5 billion before trading in their shares was suspended in March.

Those assets, however, are worth far less now, as more bad deals from Evergrande have surfaced.

Lenders hijacked about $2 billion in cash from the real estate services unit.

This was because there was a promise to guarantee loans from third parties, which ended up being transferred and diverted back to Evergrande.

The company’s chief executive and chief financial officer were asked to resign two weeks ago in light of this hitherto unknown agreement.

Last Sunday (31), Evergrande revealed another big problem: a pledge that its 14.6% stake in Shengjing Bank, a small regional Chinese lender, as part of a debt guarantee to an unidentified entity, which for in turn secured loans from some Evergrande subsidiaries.

An independent judge last month said the entity in question has a priority claim of up to $1.1 billion in proceeds from the sale of the stake.

Evergrande’s dollar-denominated bonds are still trading at a single-digit percentage of their par value, indicating little hope that their holders will get much of their money back. Source: Dow Jones Newswires.