Explainer-What’s subsequent for China Evergrande after a restructuring proposal? By Reuters

By Clare Jim

HONG KONG (Reuters) – China Evergrande Group will provide asset packages that will embody shares in its two overseas-listed companies as a sweetener for restructuring offshore debt, the developer stated, as a stifling liquidity disaster within the property sector continues.

Evergrande’s restructuring proposal got here on Friday as China’s property sector, a key pillar for the financial system, lurches from one disaster to a different. The sector has seen a string of debt defaults by cash-squeezed builders.

HOW DID EVERGRANDE COME INTO THE PUBLIC EYE?

Chairman Hui Ka Yan based Evergrande in Guangzhou in 1996 and listed the corporate in Hong Kong in 2009.

The corporate grew quickly by means of a land-buying spree backed by loans and by promoting flats shortly at low margins. It was the second-largest developer in China in 2020, with $110 billion in gross sales, $355 billion in property and greater than 1,300 developments nationwide.

However after Evergrande plunging right into a debt disaster in the course of final yr, its rating slipped to No.5 for 2021 with $64.51 billion in gross sales. It slipped additional right down to No.32 within the first half of 2022.

The agency is in different companies too, together with insurance coverage and electrical autos (EVs), and even owns a soccer membership. Hui stated late final yr Evergrande would make its electrical car enterprise its major enterprise, as an alternative of property.

HOW DID EVERGRANDE’S DEBT CRISIS UNFOLD?

In June 2021, Evergrande stated it didn’t pay some industrial paper on time, and in July a court docket froze a $20 million financial institution deposit held by the agency on the financial institution’s request.

Evergrande stated in late August building at a few of its developments had halted on account of missed funds to contractors and suppliers. And in September, it sought cost extensions for belief and financial institution loans.

Liabilities, together with payables, totalled $306 billion at end-June final yr – equal to 2% of China’s gross home product.

Its total $22.7 billion value of offshore debt is now deemed to be in default after it missed a number of bond funds late final yr. The disaster subsequently engulfed its friends as their credit score circumstances deteriorated, and drove a number of smaller companies to defaults.

HOW HAS EVERGRANDE TRIED TO RAISE FUNDS?

Because the second half of 2020, Evergrande has had two share gross sales and bought stakes in its Hong Kong-listed property administration unit Evergrande Property Providers Group, EV unit China Evergrande New Vitality Car Group and HengTen Networks Group Ltd.

It has been making an attempt to promote its property, however stated final yr asset and fairness disposal plans had did not make materials progress. Evergrande is making an attempt to promote its Hong Kong headquarters once more by way of a tendering course of that ended this week, after a possible $1.7 billion deal collapsed late final yr.

Hui additionally tried to unlock funds from luxurious property together with artwork, calligraphy and three high-end houses.

WHAT ROLE HAVE REGULATORS PLAYED?

Evergrande established a risk-management committee in December that included officers from state firms to help in its debt and asset restructuring.

Authorities, together with Vice Premier Liu He, the central financial institution and the securities regulator, have been assuring markets that dangers to the property sector and financial system will be managed, and that Evergrande’s issues are primarily on account of its “personal mismanagement” and “break-neck growth”.

They’ve additionally repeatedly inspired banks to fulfill property builders’ financing wants the place affordable.

WHAT’S NEXT FOR EVERGRANDE?

Evergrande’s debt restructuring plan won’t solely decide its future but in addition point out how Beijing plans to beat a deepening property sector disaster.

Essentially the most daunting process for the developer now’s to complete constructing flats for consumers. Its new CEO, Siu Shawn, stated final week 96% of the developments throughout the nation have resumed building.

On Friday, Evergrande stated in a long-awaited replace on its preliminary offshore restructuring proposal that it anticipated due diligence work on the group to be accomplished within the close to future, and it goals to announce a selected plan in 2022.

($1 = 6.7526 renminbi)