China Evergrande Group Advisors‘s
international bondholders have made little headway in their efforts to engage with the ailing real estate developer as time is running out towards a likely default.
Chinese real estate giant skipped interest payments on $ 1 billion of US dollar bonds on September 23 and has a 30-day grace period before its bondholders can call default . Evergrande also failed to pay the coupon on another set of dollar bonds last week. The 25-year-old is China’s largest junk bond issuer, with more than $ 19 billion in debt outstanding.
Representatives of the investment bank Moelis MC -0.06%
& Co. and the law firm Kirkland & Ellis LLP, which advise a group of Evergrande bondholders, on Friday held an online meeting attended by hundreds of investors, including hedge fund managers, from mutual funds and big banks.
âWe had a few calls with advisers, but no meaningful dialogue with the company or any additional information,â Bert Grisel, CEO of Moelis, told hundreds of the meeting attendees. “We have about two weeks left, there is absolutely an emergency situation” to press the matter, he said.
So far, Evergrande has not engaged with bond advisers, according to a person familiar with the matter. Several legal letters have been sent to the company since the first bond payment was missed. Evergrande responded this week, but without providing meaningful information, they said.
Evergrande and his advisers, including American restructuring specialist Houlihan Lokey HLI -0.14%
– were also not disclosed on the company’s recently disclosed asset sale plans, which could hurt the recovery prospects of international bondholders, according to Moelis and Kirkland & Ellis.
The prices of some Evergrande dollar bonds have plunged between 15 and 25 cents on the dollar, deeply depressed levels that indicate offshore creditors are pessimistic about how much money they can get back from the company.
Evergrande declared the equivalent of more than $ 300 billion in liabilities at the end of June, including about $ 89 billion in interest-bearing debt. The developer recently said he was struggling to pay contractors and building material suppliers, leading to construction delays. It also owes large sums of money to its employees and individual investors in China to whom it has sold investment products.
A committee of bondholders advised by Moelis and Kirkland & Ellis includes global funds, asset managers and distressed investors who together hold Evergrande debt with a face value of $ 2.5 billion. Moelis said it is in contact with more noteholders holding a similar amount, which could bring the total notional amount represented to $ 5 billion. One of the goals of Friday’s call was to gain support from more Evergrande bondholders.
Evergrande revealed at the end of September that it had reached an agreement with a Chinese state-owned company to sell part of its stake in Shengjing Bank Co.
for the equivalent of $ 1.55 billion commercial bank demanded that Evergrande use the net proceeds from the sale of the stake to repay what the developer owes it, according to a regulatory filing.
“This is a transaction that could be seen as preferential treatment for this creditor,” Grisel said on Friday.
Earlier this week, Evergrande’s property management unit said it could be the subject of a takeover bid, another deal that could raise funds for the parent company.
“What we don’t want is to have a situation where the so-called offshore assets are monetized in one way or another and the value of those assets is disclosed to other parties than this either onshore or elsewhere, “Neil McDonald, a restructuring partner at Kirkland & Ellis said during the investor call.
Mr McDonald said he reminded Evergrande and his advisers of their fiduciary obligations, which require them to preserve assets and treat creditors equally. He added that Kirkland & Ellis was working with the Harneys law firm as part of a contingency plan in case Evergrande failed to protect the rights of creditors.
Many Chinese real estate developers’ bond prices plummet after Evergrande defaulted on interest payments and Fantasia Holdings Group Co.
, another Shenzhen-based developer, failed to repay a five-year, $ 206 million bond.
The liquidation has intensified in recent days, as dozens of bonds rated by real estate developers have fallen in price amid fears of more defaults. Weak September sales contributed to the market malaise.
Chinese property developer Kaisa Group Holdings’ 9.375% bonds due 2024 have fallen 28 points since the start of the week, wiping out a third of its value, according to Tradeweb. Dollar bonds sold by Redsun Properties Group fell 16 points this week. The yield on the ICE BofA index of high yield bonds of Chinese companies reached 19.8% on Thursday, its highest level in more than a decade.
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