Evergrande Inks Restructuring Agreements for $19.1B in Offshore Debt

China Evergrande announced Monday evening that it had signed three restructuring support agreements with a significant creditor group, as the world’s most leveraged developer continues to make strides towards resolving its $22.7 billion offshore debt load.

Each relevant creditor that validly executes or accedes to the agreements by 27 April will receive a consent fee in the amount of 0.25 percent of the outstanding principal amount, Evergrande said in a filing with the Hong Kong stock exchange.

The consent fee is to be paid in kind with new notes issued by the Shenzhen-based builder or Tianji Holding, the group’s overseas financing platform. The HKEX filing includes links to web portals that creditors can use to send accession letters to Evergrande’s information agent, Morrow Sodali.

The company invites all relevant creditors to review the agreements and to accede “as soon as possible”, said chairman Xu Jiayin.

Rating Agency Doubts

The three agreements cover the various jurisdictions and creditor classes for $19.1 billion in offshore debt, as laid out in term sheets released by Evergrande last month. The relevant bondholders have 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 are to be secured by, linked to, mandatorily exchangeable into or mandatorily convertible into listed shares of Evergrande, Evergrande Property Services or electric car unit Evergrande NEV.

Evergrande said the restructuring would alleviate the company’s pressure of offshore indebtedness and speed up efforts to resume operations and resolve problems onshore. But credit rating agencies have cautioned investors to temper their expectations.

In a research note published Sunday, Fitch Ratings acknowledged that the restructurings by Evergrande and other troubled mainland developers would buy time to complete and deliver unfinished homes — a priority for the Chinese government.

“We do not expect restructurings to help developers’ access to unsecured financing, but could pave the way for some to obtain bank funding for project completion,” Fitch said. “We believe this reflects the significance of social factors in accelerating these proposals but will leave little excess cash for debt servicing in the near to medium term.”

S&P Global Ratings last month termed Evergrande’s proposal “a starting point of a potentially fractious negotiation with creditors” that could take time for all parties to reach a compromise.

“Sales recovery remains the key for developers to recover and sustain themselves as going concerns,” said S&P China specialist Chang Li.

Upside Down

An unaudited balance sheet released last month 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.

The company also highlighted a “tight liquidity situation” at Evergrande NEV, where the workforce has been slashed from 3,742 employees last June to 2,795 as of March.

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

Evergrande Property Services reported 2,730 projects under management as of February. 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.