Evergrande's ambitious bid to avert financial collapse is encountering turbulent waters.
The grand endeavor to restructure its colossal debts has hit a roadblock, courtesy of a regulatory inquiry into its primary subsidiary, as disclosed by the beleaguered Chinese titan on a Sunday.
In a statement laden with financial gravity, Evergrande lamented its inability to meet the prerequisites for issuing fresh notes, an imperative step in its precarious financial journey. The impediment? A scrutinizing investigation into Hengda Real Estate Group, its cornerstone enterprise.
A month prior, Hengda, the jewel in Evergrande's mainland China crown, found itself under the regulatory microscope, suspected of withholding vital information from investors, a transgression that drew the ire of securities watchdogs.
Should this restructuring endeavor falter, and a new accord with creditors remain elusive, the dreaded specter of liquidation looms, a stark scenario where assets are liquidated, and operations grind to a standstill.
In the wake of this disquieting news, Evergrande's stock prices experienced a freefall, plummeting more than 21% in Hong Kong, with the aftershocks felt by fellow Chinese property developers.
Once China's second-largest real estate juggernaut, Evergrande's ignominious default in late 2021 initiated a cascading crisis across the property sector, burdening the broader economy. Astoundingly, there are more vacant properties in China than its entire population of 1.4 billion.
Since stumbling into default, Evergrande has been laboring to orchestrate a government-supervised debt makeover. Back in March, the company, saddled with a staggering $328 billion in liabilities by June's end, unveiled a multi-billion-dollar conciliatory plan for international creditors and sought refuge in U.S. bankruptcy protection.
Fast forward to this Sunday, and Evergrande's announcement serves as an ominous note following the cancellation of pivotal meetings with offshore debt creditors. These cancellations were attributed to lackluster property sales in recent months.
China's authorities and investors are banking on this much-anticipated restructuring to breathe vitality back into the real estate sector, which once contributed a third of the nation's GDP.
Crucially, the restructuring hinges on the issuance of new securities, encompassing a colossal $19 billion in debts owed to overseas investors.
Initially, Evergrande dangled two options before its international creditors: either exchanging their bonds for fresh notes maturing between 10 to 12 years or converting them into a fusion of equity-linked instruments and shorter-maturity new notes. Regrettably, these options now lie dormant, immobilized by the shadow cast by the investigation into Hengda by China's Securities Regulatory Commission (CSRC).
Hengda, ever compliant, has pledged to actively cooperate with the inquiry and diligently fulfill its information disclosure obligations.
In a grim subplot, Chinese authorities detained personnel from Evergrande's wealth management unit in Shenzhen earlier in September due to their failure to meet investor repayments. This marked the first criminal probe against Evergrande since its debt woes began nearly two years ago.
Just last week, Evergrande, in an unexpected twist, acknowledged that its proposed debt overhaul had hit yet another snag, disheartening investors. The company opted to cancel the crucial "scheme meetings" with overseas creditors, originally slated for this week, citing lackluster property sales as the culprit.
Evergrande conceded the necessity of reassessing the restructuring terms to align with the company's dire circumstances and the creditors' demands. Despite receiving considerable support from overseas investors initially, Evergrande still required formal approval via these now-derailed meetings, which had been rescheduled on multiple occasions since April.
The saga of Evergrande continues to unfurl, a high-stakes financial drama with global reverberations.
