Advisers to a group of international investors in Evergrande say the heavily indebted Chinese developer has not meaningfully engaged with them or provided details of potential asset sales despite their requests, as they braced themselves for a looming default.
Law firm Kirkland & Ellis and US investment bank Moelis were hired by international bondholders in the lead-up to a crucial interest payment on September 23 that Evergrande failed to make, sparking volatile trading across international markets and a global reckoning over the health of the Chinese real estate sector.
Evergrande has a 30-day grace period on the first missed payment before a default is officially declared. It also missed a second payment on September 29.
The company made no announcement on the missed payments. The advisers, who represent a group of bondholders with $5bn of Evergrande debt, said in a call to update them on Friday evening that they had received no “meaningful engagement” with the company since first making contact in mid-September.
Bert Grisel, a managing director at Moelis, told investors on the call: “We all feel that an imminent default on the offshore bonds will occur in a short period of time.”
The advisers also noted that Evergrande had sold a $1.5bn stake in a regional bank and expressed “concerns” about a rumoured offer for the company’s Hong Kong-listed property services unit.
The world’s most indebted developer, which has been rushing to sell assets in a battle to survive, said last week it was selling part of its stake in Shengjing bank, a regional Chinese lender, to a state-owned enterprise. This week, its shares and those of its property services unit were suspended ahead of a possible offer for the latter, which has a market value of $7bn and listed late last year in Hong Kong.
“We have no details around those transactions . . . we hope however the company will give us information or comply with its [disclosure] obligations under Hong Kong listing rules,” Neil McDonald, a partner at Kirkland & Ellis, told the investors.
“We believe the company has had every opportunity,” he added. “It’s hard to understand why the requests have not been met in the way we think they should be.”
Grisel told investors on the call that the Shengjing transaction could amount to “preferential treatment”. The proceeds are expected to be used to repay liabilities Evergrande owes to the bank itself.
Evergrande did not immediately respond to a request for comment.
The missed payment in late September sparked a sell-off in Asian high-yield bond markets where it has borrowed heavily, and its bonds maturing next year have traded at about 24 cents on the dollar.
The company has hired US investment bank Houlihan Lokey to advise it but has yet to make any announcement on the matter of its offshore bond payments.
This week, Fantasia, another Chinese property developer, defaulted on $206m of its offshore bonds and disclosed the failure to repay in a filing to the Hong Kong stock exchange.
Shares in Evergrande, which has total liabilities of more than $300bn and nearly 800 projects across China, have fallen more than 80 per cent this year. In August, it warned over the risk of default in its interim results.
It is now widely expected to require a restructuring that would be one of the largest in China’s history.