The world’s most indebted developer, which last week reported a combined loss of US$81 billion for 2021 and 2022, got the consent to convene such a meeting from a Hong Kong court on Monday. If approved, the developer will need to return to the court on September 4 and 5 to seek its approval to proceed with the plan.
Evergrande is seeking to reorganise the most urgent portions of its 2.44 trillion yuan (US$340 billion) of liabilities after a 2021 default. Similar hearings will be held in the Eastern Caribbean Supreme Court on July 24 and in the Cayman Islands on July 25.
During the hearing, a lawyer for Evergrande told the court that under its proposal, the developer is likely to have an asset recovery rate of about 22.5 per cent, significantly higher than the 3.4 per cent estimated in November, should the company be liquidated, citing an updated analysis by Deloitte, a consultancy commissioned by the developer.
The approval of the plan is crucial for Evergrande’s business and for the resumption in the trading of its shares on the Hong Kong stock exchange, suspended since March last year. The stock exchange warned the Shenzhen-based developer that it could be delisted should its shares remain suspended for an 18-month period, which expires in September.
Under its proposal, Evergrande will issue new bonds to two groups of creditors plus hybrid securities that are convertible into its own shares, and into equity of its two key units involved in property management services and new-energy vehicles.
How Hui Ka-yan plans to rescue Evergrande from China’s corporate graveyard
How Hui Ka-yan plans to rescue Evergrande from China’s corporate graveyard
The developer and its chairman and founder Hui Ka-yan have pledged several tranches of “noncore offshore assets” unrelated to its property business in mainland China to creditors under the restructuring proposal. Valued at US$4 billion in August, the assets may be sold to raise cash to redeem bonds.
The restructuring plan has not gained widespread favour among analysts.
“The recovery assumptions scenarios from the company are many, uncertain and very optimistic,” said Sunil Beri, an independent UK-based analyst.
Given that most policy supportive measures rolled out in mainland China recently were “directives and supply-side issues”, they were unlikely to boost housing demand, Beri said.
“Unfortunately, the demand side is shaken after three years of draconian lockdowns. It is hard to flip the switch back on,” Beri said. “Plus, China has hit a demographics and working-age population cliff.”
Unable to tap fresh funds, many developers defaulted on debts, sparking a crisis that has led to stoppage of project construction as well as refusal of homebuyers to pay their mortgage dues.
Local governments in China have been rolling out new policies to support the beleaguered property sector, including measures that make it easier for developers to reduce mortgage rates to spur sales.
For example, Changzhou, a wealthy city in China’s eastern Jiangsu province, started allowing homeowners in March to resell their property as soon as they obtained a Real Property Ownership Certificate, rather than having to wait two years after purchase.
With additional reporting from Reuters and Bloomberg
