China Evergrande Group has reportedly proposed a long-awaited plan to restructure debt in an attempt to get out of the crisis.
Evergrande is the most indebted real estate developer in the world. Its offshore debts are worth 22.7 billion dollars, including loans and private bonds. The company is deemed to be in default after missing payment obligations late last year.
However, Reuters on May 27 cited sources saying that Evergrande is mulling repaying about 19 billion dollars to offshore public bondholders. They would pay in cash installments and stakes in two of its Hong Kong-listed units.
One source said that Evergrande proposed to repay offshore creditors by turning the principal and interest into new bonds. They will then be repaid in installments over a period of seven to 10 years.
The group will also allow offshore creditors to swap up to 20% of their debt into shares in its two listed units in the Hong Kong Stock Exchange. These units are Evergrande Property Services Group and China Evergrande New Energy Vehicle Group.
The source said that the proposal of debt restructure could be subject to change.
Evergrande has once been China’s top developer by sales. It is now reeling under more than 300 billion dollars in liabilities.
Last year, Evergrande lurched from one missed payment deadline to another. Its woes then quickly led to a wave of defaults in China’s real estate sector.
Evergrande began talks with offshore bondholders on a restructuring plan earlier this year.
In March, the group said that it would finalize the proposal to pay debt by the end of July.
The sources said that Evergrande chairman Hui Ka-yan expects the bondholders will accept the proposal because there are not many assets offshore that can be sold immediately to pay off the debts.
According to Reuters, two overseas bondholders said they preferred the debt-for-equity swap option, as they did not have much hope of Evergrande paying fully in cash.
One bondholder said, most creditors, especially the distressed funds, just want to get out. They also prefer the swap to the extended notes, even for a loss.