Beleaguered Chinese property giant Evergrande Group has provided details on a debt restructuring plan struck with creditors that will see the issuance of new bonds to help relieve the burden of over USD$20 billion in overseas debt.
According to an announcement made on 3 April, Evergrande Group has executed a trio of restructuring support agreements with members of the creditors special committee, comprised of creditors that hold outstanding Evergrande and Jingcheng (景程) notes for which the percentage of unpaid principal sums exceed 20% and 35% respectively.
Under the Group A Restructuring Support Agreement (A组重组支持协议), Jingcheng Restructuring Support Agreement (景程重组支持协议) and Tianji Restructuring Support Agreement (天基重组支持协议), each participating creditor undertakes to use its beneficial interests in the debt to approve and support the proposed restructuring in accordance with the terms and conditions of their respective agreements.
According to the debt restructuring plan previously disclosed by China Evergrande Group, it will mainly restructure overseas debts via two methods:
- Issuance of new bonds to replace the original bonds, with a term of 4 to 12 years and an annual interest rate of 2% to 7.5%. No interest will be paid for the first three years, and 0.5% of the principal will be paid from the beginning of the fourth year.
- Agreements that allow creditors to choose to convert their recoverable amounts into: (1) new notes to be issued by China Evergrande with a maturity of 5-9 years; (2) a combination of equity-linked notes that are linked to Evergrande Property Services, Evergrande New Energy Vehicles, or China Evergrande’s listed stock, with the linkage methods including guarantees, linking, mandatory exchange, or mandatory conversion into corresponding stocks; (3) a combination of the aforementioned two methods.
In its latest announcement, China Evergrande still did not specify a release date for its financial report, instead only stating that trading of the company’s stock was suspended on the morning of March 21, 2022, and will continue to be suspended until further notice.
Evergrande owes over USD$20B to overseas creditors
The size of debt directly issued or guaranteed by Evergrande reportedly exceeds $20 billion. The overseas debt involved in the current restructuring includes senior secured US dollar notes issued by Evergrande with a total principal amount of $13.9225 billion, as well as US dollar senior notes issued by Jingcheng Co., Ltd. (景程有限公司) and guaranteed by Tianji Holdings Limited (天基控股有限公司), with a total principal amount of $5.226 billion.
According to prior announcements made by Evergrande, the company is now essentially insolvent. As of the end of 2021, its total assets were approximately RMB 1.7 trillion, while its total liabilities had reached RMB 1.9 trillion.
The latest announcement reveals that the company’s available cash balance currently stands at only 2.103 billion yuan, excluding cash held by its listed subsidiaries, Evergrande Property Services and Evergrande Auto.
Evergrande previously stated that its core task over the next three years is to “ensure the delivery of homes”, and it will strive to resume regular work and production to maintain orderly operations.
The real estate giant still has a considerable funding gap when it comes to its core task of “ensuring the delivery of homes,” alongside weak repayment ability for unsecured debt.
Analysts forecast that it will need 250 to 300 billion yuan in additional funding, and that over the next three years the unleveraged free cash flow of existing projects will mainly be used to repay the new financing needed for the resumption of construction.
Evergrande hopes that from the fourth year its average unleveraged free cash flow will gradually increase to around 110 to 150 billion yuan per annum during the period from 2026 to 2036, assuming that the company can resume normal operations