China's Real Estate Crisis: Evergrande Releases Restructuring Plans

Swarajya Staff

Mar 22, 2023, 12:49 PM | Updated 12:49 PM IST

The Evergrande Group expects to finalize an agreement with creditors by month-end.
The Evergrande Group expects to finalize an agreement with creditors by month-end.

Evergrande, the troubled Chinese property developer, announced a new timeline for its restructuring process as it nears an agreement with international investors affected by its collapse.

China's property crisis slowed down growth in the second-largest economy. Evergrande's default in 2021 was the spark that led to a 4 per cent drop in property sales in January and February, though things improved slightly after Beijing intervened with support measures.

With liabilities of over $300 billion, Evergrande relied on over $20 billion of foreign borrowing for expansion, but kept investors uninformed after defaulting on debts.

Despite setting multiple deadlines to reveal restructuring plans, it failed to meet them.

During a court hearing in Hong Kong, a developer announced that they would release a term sheet on Wednesday (22 March), as part of a lawsuit initiated in June 2020 by an investor seeking to close the company, which is valued at $110 million.

Evergrande expects to finalize an agreement with creditors by month-end, with restructuring slated to take effect from October, according to a statement.

The government implemented the three red lines campaign to limit developer borrowing, putting financial strain on them despite its goal to reduce borrowing after urbanisation-driven expansion.

China's real estate industry experienced initial defaults in 2021, prompting Beijing to prioritize completing halted construction projects nationwide instead of addressing the heavily leveraged industry.

Investors of Evergrande have mostly concentrated on its offshore assets in Hong Kong, overlooking the slow progress of the company which majorly operates in mainland real estate ventures.

During the court hearing, Evergrande's lawyer stated that the company intended to release its restructuring terms on Wednesday (22 March) in preparation for offshore debt restructuring. A winding-up petition will be heard on 31 July.

Fantasia and other Chinese developers facing defaults have presented their own restructuring plans. In response, Beijing introduced credit lines last year, but they were only accessible to high-quality developers.

Consequently, some of these developers have returned to bond markets to secure additional funds.

Evergrande's financial statements for the last two years have not been publicised and its shares haven't been traded for a year.

PricewaterhouseCoopers (PwC) resigned earlier this year due to disagreements over financial statements, as declared by the company in January.

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