Chinese developers propose debt restructuring and maturity extension to source regulators

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A traffic light is seen near the headquarters of the China Evergrande group in Shenzhen, Guangdong province, China on September 26, 2021. REUTERS / Aly Song

BEIJING / HONG KONG, Oct. 27 (Reuters) – Some Chinese real estate developers have offered to extend the maturity of their offshore bonds or undertake debt restructuring during a meeting with regulators, sources said, as a wave of defaults shakes investor confidence in the sector.

The meeting highlights the behind-the-scenes efforts of debt-laden Chinese developers and regulators to contain the fallout focused on the China Evergrande group (3333.HK). Read more

The developers made the proposals at a meeting held on Tuesday jointly by the Chinese National Development and Reform Commission (NDRC) and the State Administration of Foreign Exchange (SAFE), said two sources with direct knowledge of the question, who asked not to be named because of his sensitivity. SAFE and NDRC did not respond to Reuters requests for comment.

It was not immediately clear which developers had made the proposals and on what decision the regulators were going to make.

Regulators, however, have asked developers facing large offshore debt maturities to assess their repayment risks and report the difficulties, the sources said.

The regulators also called on the limited companies present at the meeting to proactively prepare for the repayment of principal and interest on their foreign bonds and to “jointly maintain their own reputation and the general order of the market,” NDRC said. in a press release Tuesday evening.

Evergrande, once China’s best-selling developer, has over $ 300 billion in liabilities, fueling concerns about the impact of its fate on the world’s second-largest economy and global markets.

Evergrande narrowly avoided a costly default last week by securing $ 83.5 million for the last-minute interest payment on a bond, boosting confidence the company might be able to avert a collapse messy.

The developer is now expected to find $ 47.5 million by Friday and has nearly $ 338 million in other offshore coupon payments coming in November and December.

Wider concerns about China’s real estate sector, which accounts for a quarter of its gross domestic product, still weigh heavily on Chinese investors and policymakers.

The meeting with regulators took place in Beijing on Tuesday against the backdrop of several sector bond defaults. Developers Fantasia Holdings Group (1777.HK), Sinic Holdings (2103.HK) and Modern Land (1107.HK) have all defaulted on their dollar bonds maturing this month.

“Developers have been asked to report in detail on all their offshore bond repayment plans; they should indicate if there are any particular payments (for which) they are having repayment difficulties,” said one. sources.

Credit rating agency S&P said on Wednesday that defaults in China’s real estate sector were on the rise, with some $ 84 billion in onshore and offshore bonds maturing over the next five quarters and the first peak in repayment of the debt due in January 2022.

MARKET ORDER

Steven Leung, Hong Kong-based director of UOB Kay Hian brokerage, said that by initiating this type of meeting with developers, regulators are sending a positive signal to the market that they are managing the risks.

“When the NDRC is involved, there may even be a chance that the primary bond market will be active again, providing refinancing opportunities to better quality developers,” he said, adding that the lengthening of deadlines can ease some pressure on liquidity.

But restructuring lawyers said extending maturities was a complex process that required a quid-pro-quo from borrowers.

“Extending the maturities of bonds is not an easy process, especially not if they are widely held. In practice, it can be very difficult to do,” said Alexander Aitken, partner at Herbert Smith Freehills in Hong Kong.

Karl Clowry, partner at Addleshaw Goddard in London, said any request for extension in a restructuring would normally be accompanied by certain milestones – like access to books and records, management, perhaps turnaround performance milestones of a business or preservation of money.

“In China, sponsors are just not used to creditors having any influence until a company is brought into a proceeding,” he said, referring to processes such as insolvency or restructuring proceedings.

A total of eight developers, including Kaisa Group (1638.HK), Shimao (0813.HK) and Sino-Ocean Group (3377.HK) attended the meeting on Tuesday, financial media Caixin reported on Wednesday.

China Vanke (000002.SZ), Central China Real Estate (0832.HK) and Oceanwide Holdings (000046.SZ) were also among the participants, the two sources with direct knowledge of the talks told Reuters.

Vanke declined to comment. Kaisa confirmed her attendance at the meeting, without further details. Central China, Oceanwide, Shimao and Sino-Ocean Group did not respond to the request for comment.

Shares of Evergrande ended down 0.8%, while its electric vehicle unit China Evergrande New Energy Vehicle Group Ltd (0708.HK) rose 5.1% on Wednesday. The Hang Seng Index (.HIS) ended down 1.6%.

Company chairman Hui Ka Yan reportedly said on Friday that he would make his new electric vehicle project its core business, rather than real estate, within 10 years.

Evergrande said on Tuesday that it has resumed work on some projects in the Pearl River Delta region and that it will deliver 31 real estate projects by the end of 2021. That number will increase to 40 by the end of June 2022.

Many Evergrande construction projects across the country have been put on hold because it was unable to pay contractors. The developer has some 1,300 real estate projects across China.

Reporting by Jing Xu in Beijing, Clare Jim and Anne Marie Roantree in Hong Kong; additional reporting by Karin Strohecker in London; Written by Sumeet Chatterjee; Editing by Himani Sarkar, Shri Navaratnam, Ana Nicolaci da Costa and Jane Merriman

Our Standards: Thomson Reuters Trust Principles.


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