By Scott Murdoch
SYDNEY (Reuters) - China Evergrande (HK:3333)'s offshore dollar bondholders stand to receive a potentially tiny payout in a complicated process that could take years to play out after the property giant was placed in liquidation, according to S&P Global Ratings.
A new report published on Wednesday by the ratings agency said in-court cash recovery rates were around 2.8%, on average, in offshore default cases of Chinese developers.
The agency said the recovery rate for onshore defaults for the same issuer type is 8.3%.
Evergrande, which has more than $300 billion in liabilities, was placed into liquidation by a Hong Kong court on Monday.
"We assume offshore bondholders will get a few cents on the dollar once the liquidation plays out," said Chang Li, S&P Global Ratings' China corporates specialist.
"They will likely yet have to wait years even for this thin payout."
Evergrande did not immediately respond to a request for comment from Reuters. The future of Evergrande's liquidation process also hinges on the Hong Kong court decision being recognised in mainland China.
Evergrande stock and corporate bond trading remains suspended in Hong Kong.
S&P Global said Evergrande, as the offshore entity and a shareholder of the broader group, would only be paid after onshore creditors if its onshore entities were liquidated.
In its court arguments, Evergrande cited a Deloitte analysis in July that estimated a recovery rate of 3.4% if the developer were liquidated.
However, after Evergrande said in September its flagship unit and its chairman Hui Ka Yan were being investigated by the authorities for unspecified crimes, creditors now expect a recovery rate of less than 3%.
"The offshore parent, which is being liquidated, can only get repaid by extracting cash flow from the onshore entities, such as though dividends, the repayment of shareholder loans, or by selling equity," the S&P report said.
"This is a moot point as the company is in financial deficit."
Alvarez & Marsal has been appointed as Evergrande liquidator's and said in a statement to Reuters it would start meeting with Evergrande's staff to begin a process.