Evergrande Investors Reportedly Warn of Collapse as Debt Restructuring Plan Abandoned

Construction site of an Evergrande housing complex in Beijing on Sept. 13, 2021. Greg Baker/AFP/Getty Images

The cancellation of China Evergrande’s debt restructuring plan of its offshore bonds could “lead to the uncontrolled collapse” of the company and cause “a catastrophic effect” on other embattled companies in the industry, its investors warned on Oct. 9, according to The Wall Street Journal.

The Chinese real estate giant has been working with creditors on the debt restructuring plan for the last two years after it defaulted in 2021, which triggered China’s property crisis.

Under the plan reached in March with some of Evergrande’s biggest creditors, the creditors will receive a combination of debt and equity in exchange for writing off its existing debts.

However, late last month, the company announced that it failed to get approval for the plan from Chinese authorities, declining the issuance of new securities—a pivotal aspect of the debt-structured proposal.

The company later said regulators prohibited it from issuing new debts because its property development unit is under investigation.

The new development has put Evergrande’s survival into question.

A group of investors who hold more than $6 billion of the company’s bonds issued a statement on Monday, questioning the company’s efforts to secure approval for the deal. The investors said that if Evergrande fails to convince regulators to approve a new debt restructuring plan, they will support a winding-up petition, or petition to liquidate, at a hearing on Oct. 30.

The investor group warned that if Chinese regulators do not approve the company’s debt plan, “it would render any offshore restructuring of Chinese real estate companies a mission impossible,” the Journal reported.

The abandoned plan is reportedly worth around $35 billion, including bonds, collateral, and repurchase obligations.

A Troubled Company

Evergrande is the world’s most indebted firm, with a $340 billion debt. The company is at the center of an ongoing property crisis that experts say hurts China’s economic growth.

In July, it posted combined losses of $81 billion for 2021 and 2022.

In August, the troubled real estate giant filed Chapter 15 bankruptcy protection proceedings in New York as it seeks to shield itself from potential legal actions by creditors seeking to sue the company or seize assets in the United States.

It had to sell 28 percent of its stake in its promising electric vehicle (EV) unit, Evergrande New Energy Vehicle Group, to Dubai-based startup NWTN, which would invest $500 million and have a majority on the EV maker’s board.

Last year, its Hong Kong headquarters building, valued at $1.2 billion, was seized by a lender after the company failed to sell its office to pay its debts.

Last month, its chairman, Hui Ka Yan, was taken by Chinese police and is being monitored at a “designated” location, reported Bloomberg.

Meanwhile, debt-ridden Chinese property developer Country Garden Holdings said on Oct. 10 that it failed to pay off debt obligations, missing the deadline of Oct. 9 despite the grace period granted.

Financial institutions and industry experts say China’s property crisis is a significant factor in the economic downturn. The sector represents a quarter of the country’s GDP.

For the last year, Beijing has offered stimulus packages to boost the market, but there is no sign of improvement in the troubled industry.

A recent report from the Atlantic Council GeoEconomics Center and Rhodium Group, a Washington-based think tank, showed that China’s troubled property market dragged down the economy last year, prompting Beijing to implement “temporary steps,” including 16 measures to support the sector.

However, the report said this approach did not address the core problem. It only focused “more on stability than market liberalization” because regulators offered extensions for repaying bank loans and relaxed lending restrictions for property developers.