Evergrande Says Hong Kong Project in Receivership After Asset Seizure Report

Following media reports within the last week that two of China Evergrande’s largest assets have been seized by creditors, the defaulting mainland developer confirmed late Sunday that it had lost control of a 2.2 million square foot (204,387 square metre) residential project in Hong Kong’s western New Territories.

In an announcement to the Hong Kong stock exchange, the developer acknowledged that receivers had been appointed for the project in Yuen Long, confirming a report on Thursday in the Financial Times, which had named US fund manager Oaktree Capital as the creditor acting to repossess the planned development designed around a Versailles-like mansion.

While Evergrande did not specify its creditor in the statement, it did state that the repossessed project had been put up as security for $520 million in financing provided to the developer in January 2021. Market insiders have indicated that Evergrande had offered the unfinished development as collateral in negotiations with offshore bondholders, with those talks now seen as more challenging in the wake of the asset seizure.

“The company is seeking legal advice to protect the legal rights of the company,” Evergrande chairman Xu Jiayin said in the filing. “At the same time, the company is in active discussions with the lender on resolving the matter with a view of reaching a resolution thereby maximising the return to the group.”

Collateral Damage

Evergrande did not state a purpose or provide other details regarding the $520 million secured loan. The January 2021 date of the loan coincides with Evergrande’s early redemption of HK$16.1 billion ($2.1 billion) worth of convertible bonds at the time.

Xu said Evergrande is of the view that the appointment of receivers and the potential sale of the plot would not have a material impact on the operations or financial position of the group, nor affect the ongoing debt restructuring exercise.

“Upon the discharge of the secured obligations, if there is residual value on such assets, the company will give priority in using it for offshore affairs,” he said in the HKEX filing.

On Monday of last week, Evergrande had issued a statement urging all overseas creditors to “give us more time”, while on Wednesday the group held a telephone conference with holders of its offshore bonds and said it aimed to come up with a preliminary restructuring proposal within the next six months.

On 20 January, a group of Evergrande creditors had said they were prepared to take action against the developer, which has an estimated $300 billion in liabilities, if they did not see more progress on a debt restructuring plan.

According to the FT report, the Yuen Long project was a “crucial piece of collateral” in those debt discussions.

Line Forms Here

Oaktree is stealing a march on other creditors queuing up with claims against Evergrande, and not just in Hong Kong. The FT reported Friday that the Los Angeles-based firm had seized control of Evergrande’s sprawling Venice residential project in the Jiangsu provincial city of Qidong.

Oaktree, which had $166 billion in assets under management at the end of 2021 and specialises in distressed debt, had reportedly extended a $400 million loan to Evergrande backed by the resort-themed megaproject near Shanghai, only to have the developer default on that obligation late last year.

Following the default, Oaktree has gained control of Evergrande’s equity in the Venice project, the residential element of which measures 6.2 million square metres, and is set to restart construction and begin selling apartments, according to the FT account.

Oaktree’s Hong Kong-based director Raymond Chan took over as the legal representative of the project company controlling the Venice development in October of last year, the report said.

Evergrande has played for time and pleaded for patience from bondholders after setting up a “risk management committee” in December featuring officials from the Guangdong provincial government and mainland state-owned enterprises.