China’s Evergrande claims lenders demanded $2 billion in cash

Lenders to a real estate services unit of China Evergrande Group demanded more than $2 billion of its cash, dealing a blow to international investors in the heavily indebted property developer who hoped to recoup some of their losses through the subsidiary.

The claim is expected to affect the remaining value of Evergrande’s international bonds, which are already trading at a fraction of their face value of $20 billion after the company defaulted late last year. A bond maturing in 2025 is trading at 13 cents on the dollar.

Evergrande said in a Hong Kong stock exchange filing on Tuesday that lenders had taken over Rmb13.4 billion ($2.1 billion) of the subsidiary’s deposits that were pledged for “third-party guarantees.” . He did not give further details or identify the lenders.

The group, which owns more than 50% of the unit, said it considered the undisclosed lenders’ decision a “major incident” for the business and had set up an independent committee to “investigate on pledge guarantees” and assess its implications.

The claim highlights the uphill battle bondholders face after months of limited disclosures and uncertainty over the future of the world’s most indebted developer, which is struggling to complete its hundreds of projects. and manage $300 billion in liabilities as it undergoes the largest restructuring process in Chinese history. .

The company became embroiled in a liquidity crunch last summer that has since swept through the country’s property sector and crushed the value of bonds held by major international players, forcing them to closely monitor the status of its listed subsidiaries. in Hong Kong as they explore ways to recoup their investments.

The real estate services company raised $1.8 billion through an initial public offering in late 2020. Bondholder advisers raised concerns over its planned sale to Hopson Development, a Hong Kong-based real estate company, as part of wider complaints last year about a lack of disclosure. and corporate governance standards.

The sale, which fell through in October, raised the risks that the proceeds would be used for onshore liabilities such as construction costs instead of meeting debt outside China.

A person familiar with the situation suggested the money was likely to have been claimed by a bank in mainland China. “I think a Western bank would understand that they can’t take that money,” the person added.

Investors focused on the risk of other claims on the group, particularly from the mainland, which hamper their ability to recover cash. A separate December 2021 filing seen by the FT shows that around 300 million Hong Kong dollars ($38 million) of shares in the real estate services subsidiary that had been held as collateral had been executed, but no did not provide further details.

Evergrande also has an electric vehicle subsidiary that a year ago overtook Ford in market capitalization but has since lost more than 90% of its value.

Trading in Evergrande and its subsidiaries was halted on Monday pending the release of “inside information”. A call scheduled with investors for yesterday has been delayed and is expected to take place later today, the person said.

Evergrande also announced on Tuesday that it would not file its 2021 annual report in time to meet the March 31 deadline. Separately, he said he was “actively seeking solutions and communicating with his creditors” and had engaged King & Wood Mallesons, a Hong Kong-based law firm, as additional legal counsel.

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