Evergrande discusses installment payments and debt-for-equity swaps for $19 billion in offshore bonds

China Evergrande Group plans to repay offshore government bondholders who owe around $19 billion with cash installments and equity in two of its Hong Kong-listed units, two sources said, as the largest developer indebted to the world seems to be coming out of its financial difficulties.

Evergrande, whose entire $22.7 billion offshore debt, including loans and private bonds, is considered in default after missing payment obligations late last year, said in March that it would unveil a preliminary debt restructuring proposal by the end of July.

Under the proposal, Evergrande is seeking to repay offshore creditors principal and interest by rolling it into new bonds, which will then be repaid in installments over seven to 10 years, one of the sources said.

Offshore creditors will also be allowed to swap some of their debt for stakes in the developer’s Hong Kong-listed property services unit, Evergrande Property Services Group Ltd, and electric vehicle maker China Evergrande New Energy Vehicle Group Ltd. the two sources said.

The first source said up to 20% of offshore debt can be swapped for shares in these two units. The restructuring proposals are at an early stage, however, and are subject to change, the source added.

Both sources declined to be identified as they were not authorized to speak to the media.

Evergrande, once China’s top-selling developer, set up a risk management committee made up mostly of members from state-owned companies in December, as the Guangdong provincial government spearheads the restructuring.

Evergrande and the Guangdong provincial government did not respond to Reuters request for comment. Investment bank Moelis & Co and law firm Kirkland & Ellis, advisers to a group of Evergrande offshore bondholders, also did not respond.

Evergrande is reeling from more than $300 billion in debt and became the beacon child of the nation’s real estate crisis as it went from one missed payment deadline to another last year.

The developer’s woes quickly led to a wave of defaults in China’s property sector, a key pillar of the world’s second-largest economy, rattling investors and causing home sales to plummet and businesses struggling to access finance .

While state intervention has eased market concerns over a disorderly collapse of Evergrande, which has also struggled to repay suppliers and complete projects and homes, investors are still unsure whether they will get their money back.

Get a haircut

Evergrande, which began talks with offshore bondholders earlier this year over the proposed restructuring, aims to finalize the plan by July and sign the investor agreements by December, said the first source.

“(Evergrande) Chairman Hui Ka Yan hopes bondholders will accept the proposal, as there are not many offshore assets that can be sold immediately to pay off debts,” the source said.

It is not immediately clear how Evergrande will be able to secure enough cash to implement the cash repayment plan. The company saw its contract sales drop 39% in 2021 compared to the previous year.

Two offshore bondholders of Evergrande said they were more inclined to choose the debt-to-equity swap option, as they did not have much hope that the developer would be able to perform the full cash refund, even within the promised extended time.

Most Evergrande dollar bonds had fallen below 10 cents on the dollar on Friday morning. One of the bondholders said most creditors, especially hedge funds, might prefer to take a discount for the swap rather than opt for extended notes.

“The troubled funds…they just want to get out,” the bondholder said, adding that opinions were very divided among the group of creditors and no consensus has yet been reached.

Shares of Evergrande Property Services and Evergrande New Energy Vehicle, as well as the parent company, were suspended for about two months. None of them have yet filed their financial results for 2021 because the audit work was not completed.

The property management unit has also been under internal investigation since March over how banks seized its 13.4 billion yuan in deposits that had been pledged as collateral for third-party guarantees.

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