(Adds investor comment)
By Xie Yu, Clare Jim and Samuel Shen
HONG KONG, March 23 (Reuters) - China Evergrande Group's
offshore debt restructuring proposal, a test of investor
sentiment towards the cash-squeezed property sector, failed to
impress because of its long repayment period and lack of enough
sweeteners, creditors and analysts said.
Evergrande is the world's most indebted developer
with around $300 billion in liabilities. Its offshore debt
restructuring, the country's biggest such exercise, is aimed at
saving it from a disorderly collapse.
The developer has $22.7 billion of offshore debt, all of
which is deemed to be in default. The plan provided two main
options to its dollar bondholders to recoup their investments.
Creditors can either swap all of their holdings into new
notes with maturities of 10 to 12 years, or convert them into
different combinations of new notes with tenors of five to nine
years and equity-linked instruments.
Bondholders of notes issued by Evergrande's offshore units
will also be allowed to exchange their existing debt for new
notes, which will start paying coupons from the fourth year
after issuance.
The outcome of Evergrande's debt revamp plan is likely to
have a bearing on similar proposals being worked on by a string
of other Chinese developers that have defaulted on repayment
obligations in the last year.
An index tracking mainland-based property developers slipped 0.5% in early afternoon trading on Thursday,
while the broader stock benchmark index added 1.3%.
Trading in Evergrande shares remain suspended.
"Overall we are not very satisfied with it, since there
is no more credit enhancement and the new tenors are too long,"
Sunny Jiang, head of fixed income investment with Haitong
International Asset Management Ltd, said of the Evergrande plan.
"If this plan gets passed, we worry it might set a bad
example for other developers mulling their restructuring
proposals, and it might be even more challenging for bondholders
to recoup their investment," he added.
Evergrande did not respond to a request for comment.
LACK OF FUNDING
Some bondholders have been pushing Evergrande to sweeten the
restructuring deal with domestic assets, but Wednesday's
proposals did not include such terms.
A dollar bondholder, who was not authorised to speak to
media, likened the debt restructuring plan to lending a bucket
of rice to someone and being repaid with two grains a year.
More developers are likely to use the strategy of wearing
out investors' patience before offering a restructuring plan
that is unfavourable to creditors, said an investor in Chinese
property dollar bonds who no longer owns Evergrande bonds and
was not authorised to speak publicly.
Another creditor said the proposal was built on assumptions
including that Evergrande and its two Hong Kong-listed units
could resume trading and sustain their businesses despite the
lack of funding.
Evergrande said on Wednesday that additional financing
of 250 billion yuan ($36.65 billion) to 300 billion yuan would
be required as it resumes operations over the next three years.
China Evergrande New Energy Vehicle Group said
on Thursday it might have to halt production of electric
vehicles if it could not obtain fresh funding.
If Evergrande fails to push ahead with restructuring plan,
the developer may have to face liquidation proceedings filed by
an investor in one of its units in a Hong Kong court.
A representative of Evergrande's winding-up petitioner Top
Shine Global Ltd told Reuters on Thursday that the investment
firm was still studying the proposal to see if it would support
the plan or continue to push ahead with the liquidation request.
Evergrande, however, citing an analysis it commissioned,
said the recovery for offshore creditors in a group-wide
liquidation is expected to be less than $1.5 billion, a rate of
2.1% to 9.3% depending on the type of debt held.
($1 = 6.8220 Chinese yuan renminbi)
(Reporting by Xie Yu and Clare Jim in Hong Kong, Scott Murdoch
in Sydney, Samuel Shen in Shanghai; Additional reporting by
Jason Xue; Editing by Sumeet Chatterjee and Jamie Freed)
