Evergrande sets up risk committee; inches closer to restructuring


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  • Evergrande does not guarantee he can repay $ 82.5 million in debt
  • Creditors also asked for a repayment of $ 260 million
  • The authorities summon the president; stocks fall 20% to all-time low
  • A messy collapse could spill over to the real estate industry

HONG KONG, Dec.6 (Reuters) – China Evergrande Group (3333.HK) has set up a risk management committee that includes heads of public entities as the cash-strapped property developer moves closer to debt restructuring.

The real estate company, which is grappling with liabilities of more than $ 300 billion, said Monday the committee would play an important role in “mitigating and eliminating future risks” for the group.

Evergrande said on Friday it would seek to restructure its offshore debt after acknowledging it may no longer be able to meet its financial obligations, prompting the Guangdong provincial government to step in to help manage the fallout. Read more

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“Evergrande has tried selling assets to pay off the debt, but Friday’s statement basically says she’s going to ‘surrender’ and needs help,” said Conita Hung, director of investment strategy at Tiger. Faith Asset Management. “It sends a very bad signal.”

Evergrande shares fell to an all-time high on Monday as they teetered, once again, on the brink of default with the end of a 30-day grace period looming on contributions totaling $ 82.5 million .

At the end of business hours in Asia, two bondholders said they had yet to receive payments.

Evergrande, who has made 11-hour coupon payments for the past two months, declined to comment.

If Evergrande were declared in formal default, it would trigger a wave of cross-defaults that spill over into the real estate industry and beyond. Read more

Chinese authorities have stepped up efforts to reassure markets that Evergrande’s woes can be contained.

In the latest move, China’s central bank on Monday said it would reduce the amount of liquidity banks must hold in reserve, its second such move this year, freeing up $ 188 billion in long-term liquidity to support slowing economic growth. Read more

Evergrande shares fell 20% on Monday, closing at an all-time low of HK $ 1.81 after he said on Friday evening that creditors demanded $ 260 million and he could not guarantee funds for repayment coupons, which prompted the authorities to summon its president.

Analysts said the authorities’ concerted efforts have indicated that Evergrande has likely already entered a process of managed debt restructuring.

Morgan Stanley said such a process would involve coordination between authorities to maintain operations of real estate projects and negotiations with onshore creditors to secure funding for project completion.

Regulators would also likely facilitate debt restructuring talks with offshore creditors once operations stabilize, the U.S. investment bank said in a report.

The November 2022 Evergrande bond – one of two bonds that could default if defaulted on Monday – was trading at the troubled price of 18.560 US cents to the dollar, up from 20.083 cents at Friday’s close. .

LIQUIDITY PRESSURE

A traffic light is seen near the headquarters of the China Evergrande group in Shenzhen, Guangdong province, China on September 26, 2021. REUTERS / Aly Song

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The company is just one of many developers deprived of liquidity due to regulatory restrictions on borrowing, causing overseas defaults, credit downgrades and sales of stocks and bonds. developers.

To stem the unrest, regulators since October have urged banks to ease lending for normal developers’ financing needs and allowed more real estate companies to sell domestic bonds. Read more

Still, the government may need to significantly step up policy easing measures in the spring to avoid a sharp slowdown in the real estate sector as pressure on repayments intensifies, Japanese investment bank Nomura said in a report on Sunday. .

Quarterly dollar bond repayments will almost double to $ 19.8 billion in the first quarter and $ 18.5 billion in the second.

Easing measures such as the ability to sell domestic bonds are unlikely to help Evergrande refinance as there would be no demand for its notes, CGS-CIMB Securities said on Monday.

Evergrande’s inability to sell projects – with almost zero sales in November – also makes short-term debt payments “highly unlikely,” the brokerage said.

Small developer Sunshine 100 China Holdings Ltd (2608.HK) on Monday said it defaulted on a $ 170 million bond due December 5 “due to liquidity issues resulting from the negative impact of a number of factors, including the macroeconomic environment and the real estate sector “. Read more

The default will trigger cross-default clauses under certain other debt instruments, he said.

Last week, Kaisa Group Holdings Ltd (1638.HK), China’s largest offshore debtor among developers after Evergrande, said bondholders rejected an offer to exchange its offshore bonds at 6.5 % due December 7, leaving it exposed to default risk.

The developer has started talks with some of the bondholders to extend the $ 400 million debt repayment deadline, sources told Reuters. Read more

Small rival China Aoyuan Property Group Ltd (3883.HK) last week also said creditors demanded repayment of $ 651.2 million due to a series of rating downgrades, and that it could not being able to pay due to lack of cash. Read more

Aoyuan chairman Guo Zi Wen told executives at an internal meeting on Friday to have a “wartime mindset” to ensure the operation and delivery of the project and to fund repayments. a person with first-hand knowledge of the matter told Reuters.

Those tasks will be priorities for the developer, who will leave the negotiation of the repayment of the bonds to professional institutions in Hong Kong, the person said, declining to be identified because the matter is private.

Aoyuan did not respond to a request for comment.

The developer’s share price fell nearly 8% on Monday. Kaisa lost 2.2% and Sunshine 100 plunged 14%.

($ 1 = 6.3724 yuan Chinese renminbi)

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Reporting by Clare Jim in Hong Kong; Additional reporting to Shuyan Wang in Beijing and Andrew Galbraith in Shanghai; edited by Anne Marie Roantree, Jason Neely and Carmel Crimmins

Our standards: Thomson Reuters Trust Principles.

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