Chinese real estate giant China Evergrande Group has avoided liquidation once again after a Hong Kong court agreed to adjourn a winding-up petition against the company until January 29th. This is the third time the liquidation hearing has been postponed as Evergrande attempts to restructure over $300 billion in debts.
Restructuring Efforts Ongoing
Evergrande is seeking to avert liquidation through a debt restructuring plan that would involve offshore creditors taking significant haircuts on their claims. Sources indicate the plan would cut offshore debts by up to 70%, far more than earlier proposals.
The embattled developer has made some progress negotiating with onshore creditors and has reached initial restructuring agreements for some domestic projects. However, offshore creditors have opposed agreements that favor Chinese lenders over international bondholders. Evergrande is now trying to get broader creditor support for its latest restructuring plan before the January court date.
|Level of Support for Restructuring Plan
|Some initial agreements reached
|Opposition to unequal treatment
Operations Continue For Now
Trading of Evergrande shares resumed on Monday after being suspended pending news from the winding-up hearing. The shares closed up over 9% on the news that liquidation proceedings were postponed again.
Evergrande is still seeking to keep its main onshore property management unit operational throughout the restructuring process to preserve asset value. The onshore unit oversees hundreds of residential projects across China.
A group of Evergrande’s offshore creditors issued a statement in support of maintaining operations, a slight shift signaling openness to Evergrande’s latest restructuring efforts. Keeping projects moving forward is seen as crucial to protect the interests of homebuyers awaiting unfinished apartments.
Broader China Property Crisis
Evergrande’s meltdown in 2021 helped trigger a broader liquidity crisis in China’s massive property development industry, which accounts for 29% of Chinese economic output. Several major developers have struggled under mounting debts and plunging home sales.
Smaller rival Kaisa Group became the first Chinese developer to default on overseas debt last week. Its troubles intensifying scrutiny of Evergrande as a test case for the industry.
|Seeking to avert liquidation through debt restructuring
|Defaulted on offshore debt amid its own liquidity issues
|Struggling with slumping sales and tight credit
A managed restructuring of Evergrande’s debts is seen as essential to restoring confidence in Chinese real estate. Liquidation would further spook global investors already wary of China’s property sector.
What Comes Next?
With liquidation postponed until late January, Evergrande now has several more weeks to negotiate its restructuring plan and rally broader creditor support.
If Evergrande can get most creditors on board with the plan, it may be able to avert destabilizing liquidation and pave way for an orderly turnaround of its business.
However, if certain creditors continue resisting the proposed debt haircuts, the risk of messy liquidation proceedings will ramp back up as the court date approaches.
Most experts believe some mutually acceptable compromise will ultimately be reached, perhaps with sweeteners from the Chinese government. But uncertainty still looms large over Evergrande and the fragile property sector. Each small win buys more time, but the final outcome hangs in the balance.
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