China Evergrande's debt restructuring woes dent confidence of property investors
China Evergrande Group, the poster child of China's property crisis, has encountered another obstacle in its long-pending debt restructuring plan. The company, which defaulted in 2021, has been unable to issue new debt due to an ongoing investigation into its main domestic subsidiary, Hengda Real Estate Group Co. Ltd. This setback has led to a sell-off in Evergrande's shares and sent shockwaves through the crisis-hit property sector.
Massive $31.7 billion debt plan faces uncertainty
Evergrande proposed a debt restructuring plan in March, offering offshore creditors options such as swapping their current debt holdings into new notes with maturities of 10 to 12 years. The plan involves a total of $31.7 billion, including bonds, collateral, and repurchase obligations, potentially making it one of the world's largest debt restructuring exercises. However, many leading Chinese developers have defaulted on their offshore debt obligations, and few debt restructuring plans have succeeded.
Property sector index suffers amid Evergrande crisis
Evergrande's latest troubles have caused its shares to plunge as much as 24% on Monday, while Hong Kong's Hang Seng mainland property sector index traded 3.7% lower. This reverses a brief respite for the Chinese property sector, which accounts for roughly a quarter of the economy and was hit by an unprecedented liquidity crisis in 2021. Smaller property developers with high gearing but few projects on hand remain particularly vulnerable.
Developers struggle as home-buyer sentiment remains low
Despite Beijing's support measures to prop up the property sector and spur demand, leading developers like Country Garden are scrambling to avoid default, keeping home-buyer sentiment depressed. As of the end of August, the combined floor area of unsold homes stood at 648 million square meters, according to China's National Bureau of Statistics. Evergrande's latest setback in its debt restructuring plan adds to the developer's challenges, coming just a week after police detained some staff at its wealth management unit.
