Evergrande creditors fear imminent default as concerns shake sector (updated)

Shengjing Bank Co

11/10/2021 02:04

(Repeats story from late Friday.)
    * Evergrande bondholders worried about lack of information
    * Evergrande bond trustee Citi hires Mayer Brown -source
    * Evergrande due to pay nearly $150 mln in coupons next week

    By Anshuman Daga, Scott Murdoch and Clare Jim
    SHANGHAI/SINGAPORE/HONG KONG, Oct 8 (Reuters) - China
Evergrande Group  3333.HK  offshore bondholders are concerned
that it is close to defaulting on debt payments and want more
information and transparency from the cash-strapped property
developer, their advisers said.
    Evergrande, which could trigger one of China's largest
defaults https://www.reuters.com/article/china-evergrande-debt-property-bonds/update-1-building-default-fears-pummel-chinese-property-firms-idUSL8N2R433Z
 as it wrestles with debts of more than $300 billion and whose
troubles have already sent shockwaves across global markets,
missed payments on dollar bonds, worth a combined $131 million,
that were due on Sept. 23 and Sept. 29.
    With Evergrande staying silent on dollar debt payments and
prioritising onshore creditors, offshore investors https://www.reuters.com/business/investors-grappling-with-evergrande-fallout-weigh-risk-wider-pain-2021-09-20
 have been left wondering if they will face large losses at the
end of 30-day grace periods for last month's coupons.
 urn:newsml:reuters.com:*:nL8N2QP1H5
    A group of bondholders have enlisted investment bank Moelis
& Co and law firm Kirkland & Ellis to advise them.  urn:newsml:reuters.com:*:nL8N2QI4C5
    Offshore bondholders want to engage "constructively" with
the company, but are concerned about lack of information from
what was once China's top-selling property developer, said Bert
Grisel, a Hong Kong-based managing director at Moelis.
    "We all feel that an imminent default on the offshore bonds
is or will occur in a short period of time," Grisel said on a
call with bondholders on Friday.
    "Unfortunately, so far, we have had a couple of calls with
the advisers," but there had not been any "meaningful dialogue
with the company or provision of information", he said 
    Evergrande, which faces nearly $150 million in offshore
payment obligations next week, did not respond to a Reuters
request for comment.
    Neil McDonald, a restructuring partner in the Hong Kong
office of Kirkland & Ellis, said the bondholders would like more
transparency, and hoped Evergrande would meet disclosure
obligations under stock listing rules.
    The offshore bondholders are also demanding more information
about Evergrande's plan to divest some businesses and how the
proceeds would be used, the advisers said, adding that the
creditors group they represent was growing.
    The two advisers said that, including the parties that have
expressed an interest to be part of the group, they represent
bondholders who currently hold $5 billion worth of Evergrande
nominal offshore bonds.
    Evergrande said last month it would sell a $1.5-billion
stake it owns in Shengjing Bank https://www.reuters.com/world/china/china-evergrande-transfer-15-bln-stake-shengjing-bank-state-firm-2021-09-29
 Co Ltd  2066.HK . The bank, one of Evergrande's main lenders,
demanded cash from the sale go towards settling the developer's
debts with Shengjing.
    Trading in Evergrande shares has been halted since Monday
pending a major deal announcement. Trading in its Evergrande
Property Services Group  6666.HK  unit was also halted.
    China's state-backed Global Times https://www.reuters.com/business/china-evergrande-share-trading-halted-hong-kong-2021-10-04
 said Hopson Development  0754.HK  was to acquire a 51% stake in
Evergrande Property for more than HK$40 billion ($5.1 billion),
citing other media reports.
    "Whilst we don't want to overstate this, we are obviously at
this point in time preparing contingency plans to ensure that
there are no dissipation of assets," McDonald said.
    "And if there is such activity, we will be prepared to take
steps to protect the rights and interests of U.S. creditors, and
we really hope that that's not necessary," he added.
    The advisers for offshore Evergrande bondholders had reached
the developer on Sept. 16, but had not received any assurance
from the developer, demanding more transparency. 
     
    SECTOR SLUMP
    In another development, Evergrande dollar-bond trustee Citi
 C.N  has hired law firm Mayer Brown as counsel, a source
familiar with the matter, who declined to be named due to the
sensitivity of the matter, told Reuters earlier on Friday. 
    Citi and Mayer Brown declined to comment.
    The possible collapse of one of China's biggest borrowers
has triggered worries about contagion risks in the world's
second-largest economy, with other debt-laden property firms hit
by rating downgrades on looming defaults.
    With few clues as to how local regulators propose to contain
the contagion from Evergrande, the price of bonds and shares in
Chinese property developers slumped again on Friday. 
    "The potential lack of transparency and clarity are leaving
investors more skittish and it will be very difficult for people
to want to refinance any debt coming due in that particular
sector," said Cliff Corso, chief investment officer of Advisors
Asset Management.
    An index tracking China's property sector  .CSI000952 
dropped 1.53%, against a 1.31% blue-chip share rise  .CSI300 .
    The Shanghai Stock Exchange on Friday suspended trading of
two bonds issued by smaller developer Fantasia Group China Co,
with one dropping more than 50%, after controlling shareholder
Fantasia Holdings Group  1777.HK  missed the deadline on a $206
million international market debt payment on Monday.
    Fantasia Holding said in a stock exchange filing on Friday
that it had appointed Houlihan Lokey and Sidley Austin as its
advisers to assess its capital structure, evaluate liquidity and
explore solutions to ease its current liquidity issue.
    Most of Evergrande and Fantasia's bonds have already lost 
around 80% of their value.
    Meanwhile, bonds issued by Greenland Holdings  0337.HK ,
which has built some of the world's tallest residential towers
including in Sydney, London, New York and Los Angeles, and Kaisa
Group both took another beating on Friday.  L8N2R433Z .
    "Market participants are questioning if this may be a
precursor for voluntary defaults by other developers with
healthy short-term liquidity positions, but large unsustainable
longer-term debt," Chang Wei Liang, Credit & FX Strategist at
DBS Bank, said in a note.  

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
ANALYSIS-Fall in China's $1.3 trln land sales to test local
finances, economy     urn:newsml:reuters.com:*:nL1N2R32T2
ANALYSIS-Asian high-yield bond issuers feel Evergrande pain as
investors eye better protection      urn:newsml:reuters.com:*:nL4N2R208L
Citi cuts China 2022 GDP forecast to 4.9% on Evergrande
spillover     urn:newsml:reuters.com:*:nL8N2QU2F8
Goldman cuts China GDP growth forecast on energy supply crunch  
  urn:newsml:reuters.com:*:nL1N2QT2WF
Building default fears pummel Chinese property firms    
 urn:newsml:reuters.com:*:nL8N2R433Z
Evergrande and other Chinese property giants have sizeable
off-balance sheet debt - JPMorgan     urn:newsml:reuters.com:*:nL1N2R31W7
Evergrande backer Chinese Estates' stock soars on take-private
offer     urn:newsml:reuters.com:*:nL1N2R302D
Evergrande's major shareholder Chinese Estates plans to go
private     urn:newsml:reuters.com:*:nL4N2R224R
FACTBOX-China Evergrande's upcoming bond coupon payments   
 urn:newsml:reuters.com:*:nL8N2QP1H5
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Andrew Galbraith, Anshuman Daga, Scott Murdoch,
Clare Jim, Vidya Ranganathan, additional reporting by Megan
Davies and David Randall in New York; Writing by Sumeet
Chatterjee; Editing by Sam Holmes, Stephen Coates, Ana Nicolaci
da Costa, Alexander Smith and Nick Zieminski)
 ((sumeet.chatterjee@thomsonreuters.com; +852 3462 7757;))