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Evergrande liquidation hearing pushed to Jan, focus on new debt revamp plan

Published 12/03/2023, 08:47 PM
Updated 12/04/2023, 11:01 AM
© Reuters. FILE PHOTO: The company logo is seen on the headquarters of China Evergrande Group in Shenzhen, Guangdong province, China September 26, 2021. REUTERS/Aly Song/File Photo
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By Clare Jim and Xie Yu

HONG KONG (Reuters) -China Evergrande Group on Monday said it has been granted an adjournment of a court hearing into a liquidation petition to Jan. 29, giving the embattled property developer time to finalise a revamped offshore debt-restructuring plan.

The decision came as the world's most indebted developer with more than $300 billion in liabilities sought adjournment unexpectedly unopposed by the petitioner's lawyer.

On Oct. 29, at the previous adjournment, Hong Kong High Court Justice Linda Chan said Monday's hearing would be the last before a decision was made whether to liquidate Evergrande in the absence of a "concrete" restructuring plan.

After Monday's adjournment, Evergrande stock reversed losses from earlier in the day to jump more than 13%.

Evergrande defaulted on offshore debt in late 2021, becoming the poster child of a debt crisis that has engulfed China's property sector. Last week, it scrambled to revise its restructuring plan to avoid liquidation, Reuters has reported.

Evergrande "somewhat surprisingly has obtained some further time to rethink its plans," said partner Neil McDonald of Kirkland & Ellis, a legal adviser to an ad hoc group of offshore creditors opposed to the revised terms.

Still, Evergrande is likely to be wound up at the next hearing if it does not come up with a plan accepted by all classes of creditors, he said.

SURPRISE

Hong Kong-based investment firm Top Shine filed the petition in June 2022 saying Evergrande had not honoured an agreement to repurchase shares it bought in the developer's Fangchebao unit.

The petitioner surprised the court on Monday when its lawyer started proceedings saying he was "instructed not to present any argument in opposition to" adjournment.

Justice Chan ordered the petitioner inform other creditors a week ahead of the next hearing should it decide to withdraw the petition, so those creditors can continue action if they wish.

"We'll see what happens with the company before the 29th but if nothing changes, then yes," said McDonald when asked by reporters whether the creditors Kirkland represents will file to liquidate Evergrande if the petitioner withdraws.

"It (today's lack of opposition) is not an indication that we will not proceed with the liquidation petition," a representative of Top Shine told Reuters after the hearing.

Evergrande's lawyer told the court the developer expects to "refine" its restructuring proposal in the next five weeks.

Under revised terms, the lawyer said Evergrande is offering shares to creditors - 17.8% of China Evergrande (HK:3333) Group, 21.6% of Evergrande Property Services Group and 28.5% of Evergrande New Energy Vehicle Group.

It will also offer certificates, or the right to proceeds from disposable assets. Those terms replace its proposal to issue equity-linked instruments backed by the three listed companies and new bonds in March.

The ratio of shares is different for so-called Class A and Class C creditors, as is the list of assets that can raise funds, the lawyer said.

Justice Chan said Evergrande must hold direct discussion with relevant Chinese authorities on the new restructuring terms, and that the plan needs support from all creditor classes by the next hearing.

Evergrande failed to get the 75% approval required from Class C creditors for original terms proposed in March, Reuters has reported.

Managing Director Bert Grisel of investment bank Moelis (NYSE:MC) & Co - advising the same creditor group - said after the hearing the group "firmly" rejects the revised plan because creditors would be entitled to less than through liquidation.

"Liquidation does little good to creditors, but it is extremely difficult to get a debt repayment plan that satisfies everyone - that is why we have a deadlock with Evergrande here," said ANZ Bank China credit analyst Ting Meng.

UNFINISHED HOMES

Liquidation of Evergrande, whose assets totalled $240 billion at June-end, would increase pressure on a reeling property sector, which accounts for a quarter of the world's second-largest economy.

Its debt woes have been a major concern for global investors at a time when government stimulus has struggled to propel post-pandemic economic recovery, with property sales slowing and hundreds of thousands of homes left unfinished.

© Reuters. FILE PHOTO: The company logo is seen on the headquarters of China Evergrande Group in Shenzhen, Guangdong province, China September 26, 2021. REUTERS/Aly Song/File Photo

Evergrande has been working on a debt revamp plan for almost two years. Its original plan was scuppered in late September when it said its billionaire founder Hui Ka Yan was under investigation for suspected crimes.

At the time, the developer also said regulators denied approval to issue new U.S. dollar bonds - a crucial part of the restructuring plan - as its flagship onshore unit was also under investigation.

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