Evergrande Clinches Deal to Restructure $19.1B in Offshore Debt

The wait is over for details of China Evergrande’s debt restructuring plan, with the world’s most leveraged developer saying Wednesday that it had secured binding agreements with holders of $19.1 billion of the company’s offshore debt.

The term sheets published this week give the relevant bondholders two options: they can replace their bonds with new notes maturing in 10 to 12 years; or they can choose a combination of replacement with new notes maturing in five to nine years and conversion into a package of equity-linked instruments.

The equity-linked instruments will be secured over, linked to, mandatorily exchangeable into or mandatorily convertible into listed shares of China Evergrande, Evergrande Property Services or Evergrande NEV, the company said in a filing with the Hong Kong stock exchange.

Chairman Xu Jiayin called the execution of the term sheets “a substantial positive milestone” towards achieving restructuring of Evergrande’s $22.7 billion offshore debt pile.

Protection and Flexibility

Evergrande said its restructuring plan complies with international norms and best practices, protects the legitimate rights and interests of various creditors in accordance with the law and gives the creditors sufficient flexibility to choose among different plans.

“The proposed restructuring will alleviate the company’s pressure of offshore indebtedness and facilitate the company’s efforts to resume operations and resolve issues onshore,” it said. “The company will use its best endeavours to restore a healthy ecosystem of capital and business, repair its capital structure and stabilise its business operations.”

At the onshore level, Evergrande since last year has extended maturity or interest payment dates for nine series of onshore corporate bonds for a period of six months to one year, comprising RMB 53.5 billion ($7.8 billion) in principal and RMB 3.7 billion in interest.

Evergrande still has overdue interest-bearing debts amounting to RMB 208.4 billion, overdue commercial paper totalling RMB 326.3 billion and overdue contingent liabilities of RMB 157.3 billion, as the builder continues to negotiate with onshore creditors, some of which have taken legal action against the company.

An unaudited balance sheet included in the HKEX filing put Evergrande’s total assets at just under RMB 1.7 trillion ($250 billion), reflecting RMB 1.9 trillion in liabilities and negative equity of nearly RMB 200 billion.

Bumpy Road for EVs

Evergrande also highlighted a “tight liquidity situation” at Evergrande NEV, its listed electric-car division, where the workforce has been slashed from 3,742 employees last June to 2,795 at present.

“In the absence of new funding, Evergrande NEV will face the risk of shutdown,” the developer said, noting that the unit has delivered a mere 900 vehicles to date.

If Evergrande NEV can obtain more than RMB 29 billion in future financing, it plans to launch a number of flagship models and expects to achieve mass production.

In a separate filing on Thursday, Evergrande Property Services reported that it had 2,730 projects under management as of February. It said an independent review of the services arm’s internal control system is nearing completion in the wake of a $2 billion pledge guarantee scheme that led to last year’s firing of Evergrande CEO Xia Haijun and CFO Pan Darong.