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Offshore Creditors Demand More Transparency From Evergrande Amidst Potential Default

Published: October 11, 2021
WUHAN, CHINA - OCT. 7: (CHINA OUT) Residents cycle through the Evergrande city during the last day of the National Day and Golden Week holidays on Oct. 7, 2021 in Wuhan, Hubei province, China. Evergrande, China's largest property developer, is facing a liquidity crisis with total debts of around $300 billion. The problems faced by the company could impact China’s economy, and the global economy at large.(Image: Getty Images)

Teetering on the brink of collapse, China’s Evergrande Group has investors all across the globe in a state of panic. Reeling under a debt pile of $US305 billion, the company failed to make two payments on dollar bonds that were due on Sep. 23 and Sep. 29 which are valued at US$131 million combined.

The company has made no comments on the missed payments and has now entered a 30-day grace period before a default is officially declared. Evergrande is reportedly prioritizing onshore creditors. This has left offshore creditors worried, with many concerned that they will face huge losses when the grace period ends.

In need of more transparency and information, a group of bondholders has hired New York-based investment bank Moelis & Co. and law firm Kirkland & Ellis to guide them through the complicated situation. The group includes six members who hold $2.5 billion worth of Evergrande offshore bonds.

According to Bloomberg, they’ve been trying to approach Evergrande and its advisers since Sept. 16. Letters have been sent inquiring about the company’s situation. The bondholders are also seeking guarantees that offshore assets will not be sold while the company looks for a solution to the crisis.

According to Bert Grisel, a Hong Kong-based managing director at Moelis, offshore bondholders wanted to engage “constructively” with the company. However, a lack of proper information about the situation has them concerned.

“We all feel that an imminent default on the offshore bonds is or will occur in a short period of time…Unfortunately, so far, we have had a couple of calls with the advisers… [There had not been any] meaningful dialogue with the company or provision of information,” Grisel said in a call with bondholders on Oct. 8.

Pending an announcement about a “major transaction,” trading in Evergrande shares in Hong Kong was halted on Oct. 4. However, no announcement has been made so far.

In September, Evergrande revealed that it would sell a stake worth $1.5 billion in Shengjing Bank. The bank, one of Evergrande’s primary lenders, insisted that the entire net proceeds from the sale be used to repay loans. Hopson Development Holding Co is reportedly set to acquire 51 percent of Evergrande’s property management unit in a deal worth $5.1 billion.

According to Grisel, the Shengjing deal could be perceived as a “preferential treatment” given to that creditor. Neil McDonald, a restructuring partner at Kirkland & Ellis told investors, “What we don’t want is to have a situation where so-called offshore assets are being monetized in some way and the value of those assets being leaked to other parties, whether that be onshore or elsewhere.”

Michel Lowy, a veteran of distressed debts, believes that Evergrande will prioritize onshore creditors, unpaid contractors, homebuyers, and unfinished properties ahead of offshore investors. It may take several months before debt restructuring proposals are shared by the company.

McDonald underlined the creditors’ need for greater transparency. He also hoped that as per the stock listing guidelines, Evergrande would uphold its disclosure obligations. Evergrande faces offshore payments of approximately US$150 million next week.