Evergrande debt crisis: International creditors threaten legal action over ‘opaque’ restructuring process

Evergrande debt crisis: International creditors threaten legal action over ‘opaque’ restructuring process
A group of the company’s foreign bondholders are threatening legal action over its “opaque” debt restructuring process, the latest sign of trouble for the embattled Chinese developer.

They said in a statement on Thursday that they had to “seriously consider enforcement action” after Evergrande failed to engage substantively with them on the reorganization of its operations.

The company’s “lack of commitment and opaque decision-making to date runs counter to well-established international standards in restructuring processes of this magnitude,” the group wrote in its statement. Investors are represented by law firm Kirkland & Ellis and investment bank Moelis & Co.

They said the firm’s behavior “tarnishes offshore investors’ views” on expecting fair treatment when investing in Chinese companies, and added that they were “prepared to take all measures necessary to vehemently defend its legal rights and protect its legitimate interests”.

Evergrande did not respond to a request for comment from CNN Business about the statement, but said in a Friday filing with the Hong Kong Stock Exchange that it would hire more financial and legal advisers to help “follow up” on creditor demands.

The property developer is one of China’s largest and is still reeling from more than $300 billion in total liabilities, including around $19 billion in outstanding offshore bonds held by international asset managers and private banks on behalf of their clients.

Evergrande has been struggling for months to raise funds to repay lenders, and company chairman Xu Jiayin has reportedly sold personal assets to prop up his finances.
But time seemed to be running out for the company last month, when Fitch Ratings said Evergrande had defaulted on its debt – a downgrade which the rating agency said reflected the company’s inability to pay interest owed. that month on two dollar-denominated bonds.
There is also evidence that the Chinese government is guiding Evergrande through debt restructuring and sprawling business operations. The company last month set up a risk management committee made up of officials from state-owned companies in Guangdong, where Evergrande is based, as well as an executive from a major bad debt management company owned by the central government. .

But international bondholders say they have been left in the dark about the company’s plans. Creditors said in their Thursday statement that they attempted to speak with Evergrande, but received “little more than vague assurances of intent, lacking both detail and substance.”

“Actions speak much louder than words,” they added, saying the “overriding impression” is that despite the company’s public remarks, Evergrande “has ignored its offshore creditors and the legal rights of its creditors.” .

The group added that it recognized Evergrande’s recent efforts to resume most of its construction projects and wanted to “be part of a solution” to help “during these difficult times”.

Analysts have long feared that a collapse in Evergrande could trigger greater risks for China’s property market, hurting homeowners and the wider financial system. Real estate and related industries account for up to 30% of the country’s GDP.

Chinese policymakers have also made it clear that protecting domestic landlords is a priority, as they want to ensure apartments are delivered to customers, many of whom had already paid for the properties before they were completed. Last month, Wang Menghui – China’s Minister of Housing and Urban-Rural Development – told the state broadcaster that enduring the delivery of real estate projects and protecting people’s livelihoods were among the government’s main goals this year. year in the fight against risks for the real estate sector.
Evergrande has also reached agreements with domestic creditors to avoid a formal default on its onshore bond. Earlier this month, it won investor approval to delay payments on a 4.5 billion yuan ($707 million) bond.

Robert P. Matthews