Liquidation pressures grow for Evergrande

A key offshore bondholder group of China Evergrande (3333) plans to join a petition to liquidate the developer at a hearing in a Hong Kong court on Monday, two sources with direct knowledge said.

The bondholder group owns more than US$2 billion (HK$15.6 billion) in offshore notes guaranteed by Evergrande and its support to a winding-up petition against the world's most indebted developer could increase the chances of an immediate liquidation order from the court, lawyers in the industry said.

A winding-up ruling of the developer with US$300 billion of liabilities and US$240 billion of assets would likely send shockwaves through already fragile Chinese capital and property markets, and the process could be complicated with potential political considerations given the many authorities involved.

The ad hoc bondholder group, which includes hedge funds, told the court about its plan to join the petition this week, said the sources, who declined to be named because the discussions were private.

Evergrande defaulted on offshore debt in late 2021, becoming a symbol of the debt crisis that has engulfed China's property sector.

It has been working on a US$23 billion debt revamp plan with the ad hoc group for almost two years. Its original plan was scuppered in late September when it said its billionaire founder Hui Ka-yan was under investigation for suspected crimes.

The ad hoc bondholder group had been siding with the developer in opposing the liquidation petition until the last hearing in early December.

Evergrande, seeking to avert an imminent liquidation, came up with a last-minute debt restructuring proposal before the hearing last month.

Advisers to the ad hoc group, which "firmly opposed" Evergrande's revised restructuring terms, said that the developer would likely be wound up in January if it did not come up with a plan accepted by all classes of creditors.

Evergrande has not yet submitted any documents to the court ahead of the hearing, said one of the sources.

Meanwhile, the People's Bank of China allowed operating property loans to be used by developers to repay loans and bonds to strengthen their liquidity yesterday.