Hong Kong court to decide on China Evergrande restructuring in Sept

By Clare Jim

HONG KONG (Reuters) – A Hong Kong court on Monday said it will decide in September on an offshore debt restructuring for embattled property developer China Evergrande Group that could allow creditors to recoup up to about one-quarter of what they are owed.

Evergrande, the poster child of China’s property sector crisis, has $330 billion in liabilities, making it the world’s most indebted developer. A default in late 2021 triggered a string of defaults at other builders and left thousands of homes unfinished across China.

In a convening hearing on Monday, the court said it will hold sanction hearings on Sept. 5 and 6 to decide on a restructuring proposal first announced in March.

Evergrande will send out a detailed electronic package of restructuring terms and information to offshore creditors, who will vote on the plan in August, the company’s lawyer told the court.

Citing an updated analysis commissioned from consultancy Deloitte, Evergrande said the recovery rate from its proposed debt restructuring plan would be around 22.5%, compared with 3.4% if the developer is liquidated.

The March restructuring plan was proposed to creditors with a basket of options to swap debt for new bonds and equity-linked instruments.

Evergrande last week posted a combined loss of $81 billion for 2021 and 2022 and a rise in liabilities in its long-overdue financial results, raising investor questions about the viability of its restructuring plan and operations.

The estimated recovery rate was based on assumptions about creditor decisions on equity options, the developer’s ability to repay creditors and other factors, Evergrande’s lawyer said in response to questioning from the judge.

“Ultimately, it depends on the group’s ability to generate cashflow and its business operation onshore,” the lawyer said.

A separate convening hearing will take place at a Cayman Islands court on Tuesday.

Evergrande, which needs approval from holders representing more than 75% in creditor value in each debt class to pass the plan, said in April that 77% of holders of class-A debt and 30% of holders of class-C debt had indicated support.

A hearing will also be held next Monday in a separate case involving a winding up petition against Evergrande, with the decision ultimately depending on how the restructuring proceeds.