China Evergrande Group’s latest setback in finalizing its debt restructuring plan has sparked concerns in the market and led to a sell-off in its shares and those of its peers. The trouble facing Evergrande, which is already burdened with significant debt, has reignited worries about the crisis-hit Chinese property sector.
Evergrande, known as the world’s most indebted property developer, has been working on gaining approval from its creditors for a debt restructuring plan, following its default earlier this year. The plan, unveiled in March, involved offering options to offshore creditors to swap their current debt holdings for new notes with longer maturities.
However, in an unexpected turn of events, Evergrande announced on Sunday that it was unable to issue new debt due to an ongoing investigation into its main domestic subsidiary, Hengda Real Estate Group. Hengda is being probed by China’s securities regulator for suspected violations related to information disclosure.
The news sent shockwaves through the market, with Evergrande’s shares plunging as much as 24% and Hong Kong’s Hang Seng mainland property sector index trading 3.7% lower.
Experts have expressed concerns about the future of Evergrande’s debt restructuring plan, as it appears to be stuck and unable to progress. Steven Leung, sales director at UOB Kay Hian in Hong Kong, commented that alternative options, such as converting the debt into shares of other listed units, are also unlikely to work at this time.
Evergrande’s offshore debt restructuring involves a massive $31.7 billion, including bonds, collateral, and repurchase obligations, making it one of the largest such exercises in the world.
The latest setback for Evergrande comes after a brief period of relief for the Chinese property sector. Beijing’s support measures, combined with debt deals struck by two major developers, had provided some respite. However, concerns about the financial health of developers, especially smaller ones with high gearing and few property projects, continue to cloud the sector.
The default crisis in the Chinese property sector has seen several leading developers struggle to gain approval for their debt restructuring plans. Notably, China Oceanwide Holdings Ltd, which has failed to meet its debt obligations, has been ordered by a Bermuda court to wind up the company and appoint joint provisional liquidators.
Evergrande’s debt restructuring plan had already faced delays, with the company pushing back its decision to next month. The developer needs approval from over 75% of each debt class to proceed with the plan.
The persistent challenges in the Chinese property sector have kept home-buyer sentiment depressed, despite government support measures. As of August, the combined floor area of unsold homes in China stood at a staggering 648 million square meters (7 billion square feet), according to the National Bureau of Statistics.
The ongoing struggles of Evergrande and other developers underscore the fragility of the Chinese property market and its potential impact on the broader economy. Investors and industry experts will closely watch developments surrounding Evergrande’s debt restructuring plan as it continues to face obstacles and uncertainties.
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