Hui Ka Yan
Hui Ka Yan has managed to win over preliminary support from a group of major creditors, with his deeply indebted property developer China Evergrande Group telling a Hong Kong court that it aims to present offshore debt restructuring terms as early as Wednesday.
Evergrande, which is at the center of China’s sprawling real estate crisis, aims to sign an agreement with debt holders by end of March, its legal representative told a Hong Kong court Monday morning. With about $305 billion in total liabilities, the world’s most indebted property company was fighting against a wind-up petition first filed last June, as creditor and Samoa-incorporated Top Shine Global wanted to liquidate the firm over about $110 million in financial obligations that aren’t specified.
The case has now been adjourned for another four months to July 31, as Evergrande managed to show progress in the closely watched deal. In order to avoid a court-ordered liquidation and lose control of one of China’s largest restructuring process, the company has sweetened some of its offering.
This allows things to move forward, after Evergrande and offshore debt holders were at one point stuck with major differences on how the $20 billion owed to international creditors should be repaid. Though some of the bond repayment options still come with terms that stretch for as much as 12 years, the coupon rate now stands at 9%, according to one person with knowledge of the matter.
Evergrande is also willing to secure its financial obligations with shares in affiliated companies such as its Hong Kong-listed electric car unit, China Evergrande New Energy Vehicle Group, and property management arm, Evergrande Property Services, the person said. The restructuring is now expected to be in effect starting from Oct. 1, though the timeline could be subject to changes. Hui, who currently has a net worth of $3 billion that is based on Evergrande’s dividend payouts received over the years, is also expected to contribute to the repayment out of his own pocket.
Yet with the company still in a financially precarious position, the key for international creditors now is hashing out the securitization details, says Brock Silvers, a Hong Kong-based managing director of investment firm Kaiyuan Capital. China’s broader real estate market has only shown limited signs of a nascent recovery, with the International Monetary Fund warning just last month that the crisis isn’t over and prompting a sharp rebuttal from Beijing.
“Developers won’t return to Covid’s status quo ante, and Evergrande’s business model looks incapable of supporting even its restructured debt on a long-term basis,” says Silvers. “A deal may solve Hui Ka Yan’s immediate problem, but longer-term doubts remain. ”