Evergrande Enters "Restricted Default", China Is Scrambling To Moderate The Fallout
December 10, 2021
January 13, 2022
China Evergrande Group on Thursday secured approval from onshore bondholders to delay payments on one of its bonds, as other cash-strapped developers also scrambled to negotiate new terms with creditors to avoid defaults.
Struggling with more than $300 billion in liabilities, sector giant Evergrande was seeking more time for bond coupon and redemption payments to avoid a technical default that would have complicated its politically sensitive restructuring.
The deadline to vote on the six-month delay in the redemption and coupon payments of the 4.5 billion-yuan ($157 million) bond ended earlier on Thursday. In a statement late on Thursday, the developer's main unit Hengda Real Estate Group said that it had reached an agreement with bondholders to delay payments.
Developers are facing an unprecedented liquidity squeeze
Of those who voted, 72.3% approved the proposal to extend the maturity, the statement said. Evergrande, the world's most indebted property company, has so far met payments on onshore bonds that make up the vast majority of its debt, though it has defaulted on some offshore bonds.
The World Bank's economic prospects report said earlier this week a severe and prolonged downturn in China's real estate sector would have significant economy-wide reverberations, as its developers' combined onshore and offshore liabilities amount to almost 30% of the country's GDP.
Shanghai-based Shimao Group (0813. HK) will hold online meetings with creditors in two asset-backed securities (ABS) on Jan. 17, to vote on payment extension proposals, according to documents seen by Reuters on Thursday.
The two onshore ABS products - worth 1.17 billion yuan ($183.91 million) in total - are to mature later this month, and Shimao is seeking to extend the maturities to the end of 2022 while making some payments in stages before the new deadline.
Shimao last week said it has missed payment on a $101 million trust loan. Rating agency S&P, which has downgraded the firm again to "B-" this week, said on Thursday it has withdrawn the rating at the firm's request.
Shimao's onshore subsidiary Shanghai Shimao co (600823.SS) confirmed on Thursday evening it has transferred funds to repay its 4.65% yuan bond with an outstanding principal of 1.9 billion yuan maturing on Saturday.
But the firm has yet to say anything on an offshore coupon payment worth $28 million due on the same day. Shimao has another offshore coupon of $13 million due on Sunday and an onshore coupon of 22.5 million yuan due next Wednesday.
Separately, Yuzhou Group (1628. HK), founded in the eastern coastal city of Xiamen, also announced an exchange offer for two of its 2022 dollar bonds, due later this month - worth a total of $582 million - to extend the maturities by one year to avoid default. read more
It expects a delay in coupon payments totalling $110 million that are due in January and February, Yuzhou said in a filing. It is also seeking consent from holders of all of its other $4.5 billion dollar bonds to amend the terms that would help it avoid cross defaults if other bondholders seek repayment.
MORE MAY COME
Nomura estimates the sector's cash crunch could intensify with firms needing to meet onshore and offshore maturities totalling around 210 billion yuan each in the first and second quarter, up from 191 billion yuan in the fourth quarter of 2021. Developers are also desperately raising funds to repay debt.
Major player Sunac China Holdings Ltd (1918. HK) said on Thursday it would raise $580.1 million from a share sale.
A source close to Sunac told Reuters the company has no further plan in the near term to place its shares or shares in unit Sunac Services (1516. HK) to raise capital, adding it has sufficient funds to meet debt payment obligations due in the short term and for project development.
Separately, the smaller developer Agile Group (3383. HK) pledged 65.6 million shares of its property management unit, A-Living Smart City Services, on Jan. 6 for an unspecified amount, stock exchange filing showed.
Shares of Chinese developers generally closed down on Thursday, with Sunac and Agile tumbling 22.6% and 13.3%, respectively. Shimao fell 9.4% while Yuzhou shed 6.9%. Evergrande dropped 3.6%.
One of Yuzhou's yuan-denominated bonds tumbled 21.8% in the morning before it was ordered to temporarily halt trading.
Two Shanghai-traded bonds of Shanghai Shimao (600823.SS) were also suspended but after surging over 30%.
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