Evergrande’s creditors brace for battle over offshore assets
Kirkland & Ellis and Moelis & Co are working on contingency plans with offshore bondholders of the China Evergrande group who fear the ailing company will sell assets they rely on to back up their claims if the company collapses .
The New York-based law firm and investment bank are advising a group that so far includes six members holding $ 2.5 billion in Evergrande offshore bonds, a Moelis chief executive said on Friday during a call with bondholders. They have been trying to engage with Evergrande and its advisers since September 16, sending letters asking for information on the state of the business and assurances that management will not sell offshore assets while a solution is in the works. discussion course.
So far, there has been no meaningful response, a Kirkland partner said on the call, which reporters have been asked to watch. Offshore holders could be vulnerable as, by some estimates, they rank among the lowest repayment priorities if Evergrande becomes insolvent.
Kirkland is one of the largest US law firms specializing in troubled businesses and bankruptcy. An attorney for Kirkland said the group of bondholders are working with Harneys, the global offshore law firm.
A person familiar with the situation said the holders are considering various forms of redress, including the laws of the Cayman Islands where Evergrande’s listed parent company is incorporated. Evergrande representatives did not immediately respond to an after-hours request for comment via email.
The bond group seeks clarity as Evergrande embarks on a wave of asset sales. The developer’s property management arm has reportedly sparked interest from Hopson Development Holdings in a deal that would value the company at around HK $ 40 billion ($ 5.1 billion).
Last month, Evergrande agreed to offload a 20% stake in Shengjing Bank Co for $ 1.5 billion, with the bank demanding that all proceeds go to settle debts owed to the lender. The deal could give the bank preferential treatment over Evergrande shareholders, a Moelis chief executive said on the call.
The Evergrande situation is complex not only because of the massive debt, but also because the restructuring will affect jurisdictions such as China, Hong Kong, the Cayman Islands and New York.
Bondholders are acting amid signs that China will do everything possible to lock down Evergrande rather than stage a bailout from the faltering developer, whose distress has rocked global markets for weeks. This does not bode well for bondholders – both onshore and foreign – looking for some sort of government bailout.
Their concerns were fueled by reports that Evergrande had already failed to pay some of its debts. The Chinese real estate developer skipped interest due Sept. 23-29 on some dollar-denominated notes and entered a grace period, giving the company a short deadline to repay its debt before it becomes a default formal.
Earlier this week, Bloomberg News reported that creditors had failed to secure repayment of a $ 260 million bond issued by Jumbo Fortune Enterprises. The note is guaranteed by China Evergrande Group and one of its units, creditors said, and it could be the company’s first major breach of the note deadline since regulators urged the developer to avoid a short-term default.
Evergrande’s offshore bondholders could find themselves in last place when it comes to getting paid in a restructuring. Struggling debt veteran Michel Lowy said in an interview with Bloomberg Television on Friday that unfinished properties, unpaid contractors, homebuyers and onshore creditors will all come first before foreign investors, and it may take be several months with the developer to share his restructuring proposal given the complexity of the business.