Evergrande Unit Seeks Delaying Possible Yuan Bond Repayment

(Bloomberg) -- China Evergrande Group is seeking to delay an option for investors to demand early repayment on one of its yuan-denominated bonds, in the latest sign of distress amid a broader real estate debt crisis.

The property giant's onshore unit Hengda Real Estate will hold an online meeting Jan. 7-10 for holders of the note, it said in a filing to the Shenzhen stock exchange. The bond is its 4.5 billion yuan ($706 million) 6.98% security due 2023, which has a Jan. 8 put option. The firm is proposing to postpone that option date as well as an interest payment also due that day to July 8.

The note will be suspended from trading from Jan. 6. Bondholders will review the company plan for the changes and the adjustment wouldn't trigger a default, according to the statement. 

The development comes as China edges closer to potentially overhauling the world's most indebted developer that was started 25 years ago by Hui Ka Yan. A lengthy battle over who gets paid from what remains. Beijing has been reluctant to bail out Evergrande as it sends a clear signal that the Communist Party won't tolerate massive debt build-ups that threaten financial stability.

Evergrande was labeled a defaulter for the first time in early December as it missed making payments on dollar bonds. A seven-member risk management committee was established at that time to “actively engage” with creditors. That panel includes senior managers from Guangdong state-owned enterprises and China Cinda Asset Management Co., the nation's largest bad-debt manager.

Evergrande will likely not repay any bonds until an overall restructuring plan comes out, according to Ting Meng, a senior credit strategist at Australia & New Zealand Banking Group Ltd. Onshore notes don't have grace periods so any failure to repay could trigger a default, and the move could help sidestep that for now if the company gets agreement from creditors, though eventual repayment would depend on how the restructuring shapes up, she said.

Evergrande's cash crunch has become a focus for global investors, concerned that a collapse might spark financial contagion and curb growth in the world's second-largest economy, which depends on the housing market for about a quarter of gross domestic product. 

Its dollar bonds are trading at deep discounts to par value as investors brace for what could be one of China's largest-ever restructuring processes. 

Evergrande, saddled with more than $300 billion in total liabilities, is prioritizing payments to migrant workers and suppliers as regulators urge the cash-strapped developer to head off any risk of social unrest. It is also under pressure to finish homes for 1.6 million buyers who have already put down deposits, and must repay retail investors who bought some of its wealth products used to finance construction.

©2022 Bloomberg L.P.

With assistance from Bloomberg