SHANGHAI / SINGAPORE / HONG KONG – China Evergrande Group’s offshore bondholders are concerned that they are on the verge of default and want more information and transparency from the insolvent real estate developer, their advisors said.
Evergrande, which could trigger one of China’s largest defaults as it grapples with more than $ 300 billion in debt and whose problems have already shocked global markets, missed on 09/23/29.
With Evergrande remaining silent about debt payments in dollars and giving priority to onshore creditors, offshore investors are wondering whether they will suffer major losses at the end of the 30-day grace period for last month’s coupons.
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A group of bondholders hired the investment bank Moelis & Co and the law firm Kirkland & Ellis to advise.
Offshore bondholders want to be “constructive” with the company but are concerned about the lack of information from what was once the top-selling real estate developer in China, said Bert Grisel, a Hong Kong-based managing director at Moelis.
“We are all of the opinion that an imminent default in offshore bonds will or will occur in a short time,” said Grisel on Friday when he called bond creditors.
“Unfortunately, we have had a few phone calls with the consultants so far,” but there was no “meaningful dialogue with the company or the provision of information,” he said
Evergrande, facing 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 bondholders wanted more transparency and hoped Evergrande would meet the disclosure requirements under listing rules.
The offshore bondholders are also asking for more information about Evergrande’s plan to divest some businesses and how the proceeds would be used, the advisors said, adding that the group of creditors they represent is growing.
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The two advisors said they represent bondholders, including parties that have expressed interest in becoming part of the group, who currently hold Evergrande’s nominal offshore bonds worth $ 5 billion.
Evergrande said last month it would sell a $ 1.5 billion stake in Shengjing Bank Co Ltd. The bank, one of Evergrande’s major lenders, called for cash on the sale to pay off the developer’s debt with Shengjing.
Trading in Evergrande stock has been suspended since Monday, pending the announcement of a major transaction. Trading in the Evergrande Property Services Group was also discontinued.
China’s state-backed Global Times, citing other media reports, said Hopson Development would acquire a 51 percent stake in the Evergrande property for more than HK $ 40 billion (US $ 5.1 billion).
“While we don’t want to overstate this, at this point we are obviously preparing contingency plans to ensure there is no loss of assets,” said McDonald.
“And when there is such activity, we will be ready to take steps to protect the rights and interests of US creditors, and we really hope that it is not necessary,” he added.
The advisors to the offshore Evergrande bondholders had reached the developer on September 16, but received no assurance from the developer and asked for more transparency.
In another development, Evergrande dollar bond trustee Citi has hired law firm Mayer Brown as an attorney, a source familiar with the matter who declined to be named due to the sensitivity of the matter, Reuters said earlier Friday.
Citi and Mayer Brown declined to comment.
The potential collapse of one of China’s largest borrowers has sparked contagion risk in the world’s second largest economy as other debt-laden real estate companies face rating downgrades due to impending defaults.
With little hint of how local regulators are proposing to curb Evergrande contagion, Chinese property developer bonds and stocks plummeted again on Friday.
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“The potential lack of transparency and clarity is making investors more cautious and it will be very difficult for people to refinance debt due in this particular sector,” said Cliff Corso, chief investment officer, Advisors Asset Management.
An index tracking China’s real estate sector fell 1.53%, while the proportion of blue-chip holdings rose 1.31%.
The Shanghai Stock Exchange suspended trading in two bonds from smaller developer Fantasia Group China Co on Friday, with one bond falling more than 50% after majority shareholder Fantasia Holdings Group broke the deadline on Monday to pay $ 206 million. Dollar had failed to enter the international market.
Fantasia Holding said in a public filing on Friday that it has appointed Houlihan Lokey and Sidley Austin as its advisors to assess its capital structure, assess liquidity and seek solutions to resolve its current liquidity problem.
Most Evergrande and Fantasia bonds have already lost around 80% of their value.
Meanwhile, bonds from Greenland Holdings, which have built some of the tallest residential towers in the world, including in Sydney, London, New York and Los Angeles, and the Kaisa Group were hit again on Friday.
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“Market participants are wondering if this could be a precursor to voluntary defaults by other developers with healthy short-term liquidity positions but large, unsustainable longer-term debt,” said Chang Wei Liang, credit & FX strategist at DBS Bank, in a note.