Evergrande promises a restructuring plan in six months

Evergrande said it will draft a preliminary restructuring proposal within six months, in a call with creditors on Wednesday, per Reuters. It was a major milestone in the saga of the indebted property developer whose finances began to unravel last year.

• The calls began after the developer missed some dollar bond payments last month, which led a group of international bondholders to threaten legal action. Evergrande has defaulted on up to $20 billion in international bonds so far.
• A week ago, Evergrande’s board and risk management committee pleaded with offshore bondholders to “give us more time.” Rating agency Moody’s said in a report on Wednesday that the developer’s offshore creditors rank behind that of its more than 1,950 onshore subsidiaries, which means the former are right to worry.
• Earlier this week, Evergrande underwent a major management shake-up, in signs that changes are afoot. Two executive directors resigned and the chairman of Evergrande’s electric vehicle arm chairman, Siu Shawn (肖恩 Xiào Ēn), was promoted to replace them.

The context: China has been trying to stanch the flow of credit to its real estate sector since August 2020, when it unveiled policies to force property developers to maintain a certain debt ratio. The goal was to rein in the reckless expansion of big property developers like Evergrande.

• In early December, Evergrande asked the government of its home province of Guangdong for help. Major decisions now go through a risk-management committee composed of Evergrande executives and representatives from a number of state-backed organizations.
• Weeks following the assistance call, the developer announced it had resumed 90% of its stalled residential projects. More than 80% of its suppliers have resumed business.
• Since December, the People’s Bank of China has in fact begun to ease borrowing. Last week, it cut lending rates in a few areas, including one for mortgages.

The takeaway: Evergrande looks like it will survive in some form. The developer will restructure parts of its business to satisfy angry creditors, but the rest of the business seems to have been handed a lifeline. The government is injecting life back into the property market and economy in 2022 as the property downturn starts to weigh down the overall economy.

Beijing may have paused its surgery to focus on the success of the Winter Olympics and to control risks ahead of its 20th Party Congress in the fall.

Related reports:

• China Evergrande promises to play by the book in offshore debt restructuring / WSJ (paywall)
• China property shares slump as planned U.S. rate hike adds to woes / Reuters
• Oaktree risks showdown with Beijing over Evergrande debt / FT (paywall)