Embattled property giant Evergrande is planning what could become China’s biggest ever debt restructuring, wrapping in all its offshore obligations, reports said, as it established a risk committee before looming payment deadlines.
The company’s struggles to meet its commitments have fanned concerns about China’s property sector, which forms a substantial part of the world’s second-biggest economy.
Grace periods for interest payments on two notes worth $82.5 million were scheduled to end on Monday, December 6, and could mark the company’s first default.
It is the most prominent Chinese real-estate firm to have plunged into crisis after Beijing embarked on a regulatory drive last year to curb speculation and leverage — cutting off a key avenue for accessing cash. But there have been signs the government is starting to ease property curbs.
A seven-strong “risk management committee” will involve only two executives from Evergrande plus officials from state entities, raising expectations the government could get more involved to manage its huge debt pile of $300 billion.
The committee has been set up “in view of the operational and financial challenges” Evergrande is facing, according to a filing with the Hong Kong stock exchange on Monday.
It came days after the government summoned the company’s founder following warnings it might not have enough funds to meet its financial obligations.
Guangdong’s provincial government is now sending a working team to the company, which analysts at Jefferies said indicates a “potential takeover of Evergrande”.
Bloomberg News reported that Evergrande was planning to include all its offshore public bonds and private debt obligations in a restructuring, citing people familiar with the matter.
The restructuring — which has yet to start — could cover public bonds sold by Evergrande and unit Scenery Journey, as well as $260 million of notes issued by joint venture Jumbo Fortune Enterprises, Bloomberg said.
A flurry of regulator statements has also signaled that officials are working to contain the fallout at China’s second-largest developer by volume.
“Evergrande’s disclosures and the ensuing government statements were well coordinated, pointing to formal beginning of Evergrande’s debt restructuring,” Nomura’s chief China economist Lu Ting said in a note.
He added the regulators’ comments suggested “global investors should take responsibility for their own decisions to invest in Evergrande’s dollar bonds and the Chinese government will not provide a hard guarantee to indebted companies like Evergrande.”