Evergrande would include offshore bonds in restructuring

China Evergrande Group plans to include all of its offshore bonds and private debt obligations in a restructuring that could be the largest in the country, according to people familiar with the matter.

The plan would cover government bonds sold by Evergrande and the unit Scenery Journey Ltd.said the people, who asked not to be identified because the information is private.

It would also include about $ 260 million in notes issued by the joint venture. Jumbo Fortune Enterprises that Evergrande has guaranteed, one of the people said. The formal restructuring process has not yet started and the details of the plan could change.

While Evergrande formally recognized the need to restructure its offshore debt for the first time on Friday, the promoter’s brief statement had investors guessing whether the reform would encompass its entire complex web of international obligations. Evergrande has about $ 19.2 billion in outstanding offshore government bonds and $ 8.4 billion in local bonds, according to data compiled by Bloomberg.

Speculation on the fate of Evergrande It has plagued Chinese credit markets for months, stoking fears of financial contagion and prompting the Xi Jinping government to take a series of measures to contain the fallout on Asia’s largest economy.

The most recent supportive measures came on Monday with the release of 1.2 trillion yuan (US $ 188 billion) of liquidity from China’s central bank into the financial system through a cut in the reserve requirement ratio for most of the banks.

The Government also intensified signals that it will ease housing restrictions, pledging to support the housing market to better meet needs “reasonable”.

Grace periods for the payment of interest on two bonds from Evergrande’s Scenery Journey unit end Monday and could mark the promoter’s first default on public debt. Evergrande said in its statement on Friday that it may not be able to fulfill its commitment to guarantee payment of the notes issued by Jumbo Fortune. The developer did not immediately respond to a request for comment on its restructuring plan on Monday.

Evergrande is at the epicenter of a broader crisis in Chinese property debt that was sparked by a government crackdown on over-indebtedness and property speculation. Chinese borrowers have defaulted on a record $ 10.2 billion of offshore bonds in 2021, with real estate companies accounting for 36% of that total, according to data compiled by Bloomberg.

That has pushed returns on an index of Chinese junk bonds, many of which come from real estate firms, to near-record levels above 22%.

On Monday, the dollar bond of Evergrande Due in March 2022, it was heading towards its biggest drop on record.

A barrage of statements from Chinese regulators, several of which came minutes after Evergrande’s announcement on Friday, suggests that authorities are struggling to contain the fallout for homeowners, the financial system and the broader economy instead. to orchestrate a rescue.

Evergrande has been reviewing its capital structure and has entered into a “ongoing dialogue with offshore creditors”Since September, according to his presentation on Friday.

The next step is for the consultants to Evergrande initiate meetings with the bondholders’ representatives, people familiar with the matter said.

The turmoil occurs after several weeks of relative calm to Evergrande, which has been making last-minute payments on its dollar bonds since late October at the urging of the Beijing government. Friday’s statements indicate that the world’s most indebted developer may not make more payments within its grace periods.

The question for global markets is whether Beijing can coordinate a restructuring without disrupting the broader real estate sector, which accounts for nearly a quarter of economic output.

Policymakers have a history of abandoning efforts to curb developers when risks to growth mount, although Xi appears more determined than his predecessors to end the moral hazard that allowed companies like Evergrande to expand so quickly.

While it will be important to monitor how Evergrande’s restructuring progresses, the odds of a resumption of panic in Chinese credit markets are low, according to analysts at China International Capital Corp., one of the largest investment banks in the country.

Real estate companies with poor management and high financial risks will be “eliminated“But authorities are likely to ensure that higher-quality developers retain access to finance, they wrote. Yan Xu y Eric Yu Zhang, analysts CICC, in a report.