China Evergrande proposes new debt restructuring plan
China Evergrande has put forth a new debt restructuring proposal for its offshore bondholders, suggesting they exchange their debts for a 30% equity stake in each of the developer's two Hong Kong-listed subsidiaries, Reuters reported. The real estate firm's offshore bondholders possess roughly $19 billion (Rs. 1.58 lakh crore) in debt and could face major losses on their investments if they accept the new terms.
Bondholders' recovery rate
A legal representative for a key group of bondholders informed a Hong Kong court on Monday that the restructuring plan might yield a higher recovery rate for creditors compared to a liquidation scenario of less than 3%. The property developer's dollar bonds were last traded at approximately 2.25 cents on the dollar on Tuesday, based on LSEG data, as bondholders consider potential recoveries in the updated restructuring plan versus other alternatives like winding up.
Shares offered and market value
The shares in Evergrande Property Services Group and Evergrande New Energy Vehicle Group, the units that bondholders would receive stakes in, have plummeted over 80% this year due to Evergrande's debt issues. Their combined market value was only around HK$9 billion (roughly Rs. 9,580 crore) as of Wednesday morning, with the parent company owning 52% of the property subsidiary and 59% of the vehicle firm. The stake transfer to the creditors will require approval from Chinese regulators.
Original restructuring plan derailed
Evergrande's initial debt restructuring plan was derailed when its billionaire founder Hui Ka Yan was taken under control for alleged criminal activities in late September. The corporation was also prohibited from issuing new dollar bonds, a crucial component of its original restructuring plan, while its primary mainland unit was scrutinized by regulators. The revised plan was presented to some bondholders about two weeks ago.
Guangdong government's role and challenges ahead
According to the Reuters report, the new plan was initiated by a work committee under the southern Guangdong provincial government, which has been supervising Evergrande's restructuring since late 2021, following the developer's default on its debts. Industry experts say the most significant challenge for Evergrande will be persuading its creditors and shareholders in the two Hong Kong-listed units that the new proposal is worth considering.
