Under its proposal, Evergrande will issue new bonds to two groups of creditors plus hybrid securities that are convertible into its own shares, and into equity of its two key units involved in property management services and new-energy vehicles.
The developer and its chairman and founder Hui Ka-yan have pledged several tranches of “noncore offshore assets” unrelated to its property business in mainland China to creditors under the restructuring proposal. Valued at US$4 billion in August, the assets may be sold to raise cash to redeem bonds.
The restructuring plan has not gained widespread favour among analysts.
“The recovery assumptions scenarios from the company are many, uncertain and very optimistic,” said Sunil Beri, an independent UK-based analyst.
Given that most policy supportive measures rolled out in mainland China recently were “directives and supply-side issues”, they were unlikely to boost housing demand, Beri said.
“Unfortunately, the demand side is shaken after three years of draconian lockdowns. It is hard to flip the switch back on,” Beri said. “Plus, China has hit a demographics and working-age population cliff.”
The real estate sector in mainland China has been contending with a demand and confidence crisis following Beijing’s initiative to stem risky borrowings and unfettered expansion of its property developers set out under its “three red lines policy” unveiled in 2020.
Unable to tap fresh funds, many developers defaulted on debts, sparking a crisis that has led to stoppage of project construction as well as refusal of homebuyers to pay their mortgage dues.
Local governments in China have been rolling out new policies to support the beleaguered property sector, including measures that make it easier for developers to reduce mortgage rates to spur sales.
For example, Changzhou, a wealthy city in China’s eastern Jiangsu province, started allowing homeowners in March to resell their property as soon as they obtained a Real Property Ownership Certificate, rather than having to wait two years after purchase.
In June, however, mainland China’s property companies’ struggles continued as home prices in cities were flat to lower, according to official data.
With additional reporting from Reuters and Bloomberg
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