Evergrande Offshore Creditors Warn of Legal Action Over Default and Weak Engagement

A partially removed company logo of China Evergrande Group is seen on the facade of its headquarters, near a traffic light in Shenzhen, Guangdong Province, China on Jan. 10, 2022. (David Kirton/Reuters)

International creditors of the world’s most-indebted property developer threatened on Jan. 20 they would roll out “all necessary actions” to defend their rights if the company fails to resolve its default in good faith.

China Evergrande Group has been struggling with over $300 billion in total liabilities, including nearly $20 billion of international bonds all deemed to be in cross-default by rating agencies after a run of missed payments late last year.

The troubled developer failed to show enough urgency and effectually engage with bondholders for months, despite promising the opposite, a key body of its international creditors accused.

The group, under the acronym AHG, said in a Jan. 20 statement that it had no choice but to “seriously consider” enforcement actions due to a lack of engagement by Evergrande at the heart of China’s property crisis. The group, represented by law firm Kirkland & Ellis and investment bank Moelis, takes up billions of dollars of its debt.

“Despite the efforts to engage in substantive dialogue with the group [Evergrande], including through information requests, to date the AHG has received little more than vague assurances of intent, lacking in both detail and substance,” the bondholders’ advisers said, according to Financial Times.

Evergrande had promised to “actively” engage with all stakeholders “utilizing its extensive resources,” the company said in a December statement on the Hong Kong stock exchange.

Bondholders urge Evergrande to “promptly engage” with the group, by granting full transparency of its financial position and liabilities and suspending any asset sales without consulting the creditor group.

“The AHG is prepared to take all necessary actions to vehemently defend its legal rights and protect its legitimate interests,” the statement reads.

Following the legal action warning, the property giant said it was hiring more financial and legal advisers to help it with demands from creditors, according to a stock market statement released on Jan. 21.

According to Refinitiv data, Evergrande faces $117 billion worth of debt maturing in 2022, including $27 billion due in the first quarter of this year, and $31 billion in the second quarter. It comes as the property sector slowed down in China and regulators tightened traditional borrowing markets.

An aerial view shows the 39 buildings developed by China Evergrande Group that authorities have issued a demolition order on in Hainan Province, China on Jan. 6, 2022. (Aly Song/Reuters)

Evergrande said on Dec. 30 via social media that over 90 percent of its national projects have resumed construction. Yet the same day, local authorities in China’s southernmost province Hainan, ordered Evergrande to demolish 39 buildings at a resort island where it has spent $13 billion to build tens of thousands of homes, the developer later confirmed. Local media said it was due to illegal construction.

“The company will actively communicate with the authority,” Evergrande said.

Although Chairman Hui Ka Yan vowed to deliver 39,000 units of properties in December, each of the previous three months saw fewer than 10,000. Investors of Evergrande financial products worried that their returns would be sacrificed to keep real estate projects afloat.

“Evergrande, return our money!” people from a crowd of roughly a hundred shouted outside the company’s offices in southern Chinese city Guangzhou on Jan. 4.

Early last week, the embattled developer announced that it has moved out of its headquarters in Shenzhen to another property in the city to cut costs.

It was also reported that Evergrande will sell the group’s buildings in Hong Kong and Guangzhou, without further information available.

A bright spot came to its main unit and property service provider Hengda Real Estate Group, which has reached an agreement with bondholders to delay payments for a $708 million onshore bond, the subsidiary said last week.

Reuters contributed to this report.