Evergrande Cancels Bondholder Meeting, Shelves $35B Restructuring Plan

With China’s government rolling out measures to bail out the country’s property sector, China Evergrande Group may have knocked out any rebound in investor confidence with a pair of announcements this weekend which could see the former number two developer on its way to liquidation.

Late Friday the developer said it was binning a $35 billion plan to restructure its offshore debts first announced in March, due to further deterioration in its home sales. The restructuring plan, which had been set to go in front of bondholders for a vote last month before Evergrande rescheduled the meeting to Monday (25 September), would have bought the company time to work out it debts and avoid a fire sale.

“Since the date of the Announcement, the sales of the Group has not been as expected by the Company,” Evergrande said in a statement to the Hong Kong exchange on Friday. “Based on the Company’s current situation and consultations with its advisors and creditors, the Company considers it necessary to re-assess the terms of the Proposed Restructuring to meet the Company’s objective situation and the demand of the creditors.”

The announcement cancelled a meeting scheduled for Monday which would have given bondholders a chance to approve, or reject, Evergrande’s proposal. The announcement came within the same week that news reports revealed that Chinese police had detained staff at Evergrande’s wealth management unit.

Plan Crumbles

Sunday revealed a further blow to Evergrande’s prospects for recovery, with the company announcing that the current restructuring proposal, which involved creditors accepting new notes to replace existing securities which the developer had defaulted on, was no longer viable.

The note replacement plan has been scrapped due to Chinese legal restrictions which forbid companies under investigation from issuing new securities. With the police currently investigating Evergrande’s primary onshore subsidiary, Hengda Real Estate Group Co, Ltd, the group is unable to follow through on its restructuring plan as previously proposed.

Evergrande shares recommenced trading on 28 August after an 18-month trading halt with the company’s stock losing 79 percent of its value on that day.

Bankruptcy Beckons

In its first half results, released just before trading resumed, Evergrande had touted a narrower loss attributable to shareholders of RMB 33 billion ($4.5 billion) against RMB 64.2 billion in the prior-year period as revenue jumped 43.5 percent to RMB 128.2 billion.

While still flagging uncertainty regarding its survival, Evergrande had said that the group’s contracted sales in the first half had reached RMB 33.4 billion — up 172 percent on year-earlier levels.

Evergrande filed for Chapter 15 bankruptcy in the US during mid-August, in a move which many analysts had seen as a move to formally kick-off its restructuring process.