Hui Ka Yan speaks during a press conference on the sidelines of the fourth session of the 12th National People’s Congress in 2016 in Beijing.
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Hui Ka Yan has repeatedly pledged to pay China Evergrande Group’s total liabilities of more than $300 billion, but the beleaguered tycoon is still nowhere near finalizing a deal with international creditors, even as the company faces a liquidation hearing in less than two weeks .
The 64-year-old sent senior officials to meet with an ad-hoc group of offshore debt holders in Hong Kong about a week before the Lunar New Year holiday in late January, but in the months since, the two sides have yet to agree on key terms for a long-awaited restructuring deal, according to people familiar with the discussions.
Although Evergrande has previously said it expects to win the support of debt holders, the gap between the parties has, in fact, become even wider. International creditors, owed about $20 billion, want faster and bigger cash repayments in light of clear signs of a nascent recovery in China’s property market. But Evergrande, which has already missed his self-imposed deadline to unveil its restructuring plan by the end of last year, is unwilling to sweeten its offer. Some of the company’s proposed bond repayments come with terms stretching as far as 12 years, one of the people said.
Evergrande still needs to save precious cash for other purposes. It is said to be under significant pressure to repay land-based creditors and complete construction of its pre-sold housing projects. The company is at the center of China’s widespread real estate crisis, which has even seen some angry homebuyers boycott mortgage payments on presold but unfinished homes. At China’s national parliament meetings currently taking place in Beijing, officials have once again stressed the need to manage the risks associated with the real estate sector and ensure that homes are delivered to their respective buyers.
“There are significant outstanding seniority concerns, particularly with respect to onshore creditors, which is exactly where Evergrande is likely to be limited,” says Brock Silvers, managing director of Hong Kong-based investment firm Kaiyuan Capital.
A spokesman for Evergrande declined to comment. Investment bank Moelis & Company and law firm Kirkland & Ellis, which represent the ad-hoc group of creditors, also declined to comment.
Evergrande, meanwhile, is trying to compensate bond investors with means that don’t require cash payments. For example, the company had offered to let them convert their debt into minority stakes in its Hong Kong-listed electric car and property management units, according to people familiar with the matter, but many saw the offer as less attractive.
In addition to heated disagreements over valuation, creditors are said to be concerned about potential governance risks. Last year, some senior executives at Evergrande were forced to resign after it was discovered that $2 billion worth of cash belonging to the Hong Kong-listed property management unit had been seized by banks. Evergrande Property Services had used the cash deposits as collateral for loans, which were eventually transferred back to parent Evergrande through various intermediary companies. Banks seized their collateral after Evergrande Property Services failed to repay the loans.
Despite the lack of progress towards a deal, analysts say Evergrande is unlikely to liquidate at this stage because it needs to continue operating to meet the government’s target of ensuring all pre-sold projects are delivered to home buyers. The company already faces a winding-up hearing in Hong Kong on March 20 after a creditor filed for the company to be wound up so its assets can be distributed to repay creditors. Evergrande aims to present certain restructuring terms to the court in order to seek another postponement, according to a Reuters report, citing unnamed sources.
“I don’t think Evergrande will be liquidated and then go bankrupt,” says Yan Yuejin, director of the Shanghai-based China E-house Research and Development Institute. “If companies like Evergrande are allowed to fail now, their home buyers will panic.”
A woman rides a scooter in front of the construction site of an Evergrande housing complex in Zhumadian, central Chinas Henan province, on September 14, 2021.
JADE GAO/AFP via Getty Images
That means negotiations with international creditors may well drag on, and any deal would arguably take much longer to complete than the recent restructuring of China Fortune Land or that of billionaire Sun Hongbin’s Sunac China Holdings, which had just been backed by large offshore debt holders after defaulting on a dollar bond last May.
And a final deal would likely involve Hui using more of his own funds to make some of the payments. Hui’s net worth now stands at $3 billion after he used at least $1 billion of his personal funds to pay off some of Evergrande’s debt.
“I think it is extremely likely that any negotiated settlement will include some contribution from Hui,” says Kaiyuan Capital’s Silvers. “I guess the creditors see it as the right thing to do given Hui’s enrichment despite the obvious mismanagement of the company.”