China Evergrande hires financial advisers as protests erupt at its offices

Chinese property giant Evergrande has moved closer to a potential restructuring of its $A121.6bn debt burden by hiring outside advisers amid protests at its offices.

China Evergrande Group moved closer to a potential restructuring of its $US89bn ($A121.6bn) debt burden by hiring outside advisers, while the property developer’s financial problems spilled over into angry protests at several of its offices.

The real-estate giant warned Tuesday that “ongoing negative media reports” had hurt home buyers’ confidence in Evergrande, and would likely mean significantly lower sales in September, which is typically a strong month for China’s property industry. Contracted sales in August had fallen 13 per cent month-on-month to the equivalent of $US5.9bn.

It said lower sales would in turn place tremendous pressure on the group’s cash flow and liquidity. Meanwhile, it said attempts to raise cash by selling its Hong Kong offices and stakes in some units were taking longer than planned.

Evergrande said it had hired a unit of Houlihan Lokey, a US investment bank with a reputation for handling restructuring work, and Hong Kong-based Admiralty Harbour Capital as financial advisers.

In a statement to the Hong Kong stock exchange, it said the two firms would “assess the Group’s capital structure, evaluate the liquidity of the Group and explore all feasible solutions to ease the current liquidity issue and reach an optimal solution for all stakeholders as soon as possible.”

The company also said two units had failed to honour their obligations as guarantors of wealth-management products issued by third parties. It said if it couldn’t make good on those guarantees, or failed to repay other debts on time, that could lead to a cross-default.

Evergrande’s announcement reflected “ a series of setbacks that could tip the company into default,” CreditSights analysts Luther Chai and Cheong Yin Chin wrote in a note to investors.

The hiring of financial advisers suggests Evergrande might have started working on a debt restructuring plan, said Li Gen, chief executive of Beijing BG Capital Management, a credit-focused asset manager.

“The status quo leaves Evergrande very few options,” Mr Li said, pointing to Evergrande’s slowing apartment sales and its lack of bargaining power with potential asset buyers. “But the government must be keeping a close eye on it. If the social unrest keeps spreading, or if the financial market is roiled, the government will step in to help,” he said.

In a separate statement on its website late Monday, Evergrande said rumours that it would seek to restructure under a Chinese form of bankruptcy protection were completely untrue. It said it was facing unprecedented difficulties, but was fulfilling its responsibilities and doing everything possible to restore normal operations and to protect customers’ rights and interests. It didn’t respond to requests for comment Tuesday.

Evergrande, led by billionaire chairman and founder Hui Ka Yan, is one of China’s biggest property developers and the country’s largest junk-bond issuer.

The company has struggled since regulators told developers last year that they needed to reduce leverage before taking on additional debts. In recent weeks, the company has fallen behind on paying some suppliers, causing some property projects to be suspended.

The Shenzhen-based group had the equivalent of about $US89bn in borrowings at the end of June, 42 per cent of which are due in less than a year. It disposed of the equivalent of $US2.2bn of assets in the first half of the year.

In Hong Kong on Tuesday, the company’s stock plunged 12 per cent to its lowest level since December 2014. Shares in its subsidiaries Evergrande Property Services Group and China Evergrande New Energy Vehicle Group fell sharply. The company’s dollar bonds, which have already sold off sharply, declined further in price.

As well as market pressure, Evergrande is contending with social unrest as suppliers seek repayment for unpaid bills or commercial paper, home buyers demand that construction work restarts on stalled projects and investors in Evergrande-linked wealth-management products seek to recoup their investments.

On Monday, dozens of people gathered at Evergrande’s headquarters in the southern city of Shenzhen, demanding that the company repay them, according to pictures and video snapshots circulated online. Police holding security shields and speakers assembled at the headquarters. Another gathering formed Tuesday, photographs from the Agence France-Presse newswire showed.

Trouble has also erupted in recent days at the offices of Evergrande managers in the central Chinese city of Nanchang in Jiangxi province, and in Zhengzhou, in northern Henan province, according to pictures and videos viewed by The Wall Street Journal.

On Monday, dozens of protesters marched in the commercial centre of the western city of Chengdu, holding banners demanding Evergrande return their money “earned with blood and sweat,” according to video snapshots shared on Weibo, a Twitter-like social-media platform.

Some Evergrande employees discovered last week that wealth-management products they had bought from the company would delay repaying them interest or principal, some of those staffers told the Journal.

On Monday, Evergrande proposed three repayment options for these investors, according to a company document that was reviewed by the Journal. They can opt for 10 quarterly cash instalments; new property; or to offset these investments against sums they owe for properties they have already bought from Evergrande.

The Wall Street Journal