Beijing –
China’s property developers, struggling to manage more than $300 billion in debt, announced Thursday a long-awaited plan to restructure debt owed to overseas bondholders.
The Evergrande Group, the most heavily indebted company in the global real estate industry, is running out of cash after the Chinese government tightened controls on corporate debt and fears the ruling Communist Party is dangerously high. Several other Chinese developers have collapsed, leaving half-finished apartment blocks empty.
The Evergrande struggle has raised concerns about possible shockwaves to the global financial system. The People’s Bank of China tried to reassure investors, saying the problem was controllable and unlikely to spread.
Central bank deputy governor Pan Gongsheng said earlier this month that the real estate industry was finally recovering from a string of debt defaults. Pang said funding conditions for sound developers have “improved significantly.”
Evergrande’s plan is aimed at foreign bondholders who owe about $20 billion in debt. They will receive new bonds and other liabilities related to his two Evergrande subsidiaries that manufacture electric vehicles and manage real estate. It was not clear how much bondholders could lose compared to paying in full on the original terms.
In a statement issued through the Hong Kong Stock Exchange, the company said the proposed terms were “substantial positive milestones in achieving the restructuring” and represented “major progress”. Investors will be asked for approval by the end of March, he said.
The announcement comes as China’s leaders seek to revive economic growth that fell to 3% last year, the second lowest level since the 1970s. The ruling party has officially set its growth target for this year at “around 5.5%.”
Chinese regulators stepped in to oversee Evergrand’s debt restructuring, but economists said they refused bailout to avoid sending the wrong message to companies about the need to reduce debt. .
Foreign creditors had to speculate whether they would receive anything as the company missed two previous deadlines to announce repayment terms.
China’s economic growth slowed in mid-2021 after Evergrande and other heavily indebted developers were prevented from borrowing additional capital. This caused confusion with antivirus controls.
Local authorities have taken over some unfinished projects to ensure families can get apartments they have already paid for.
Evergrande reports assets of over 2.3 trillion yuan ($330 billion) and liabilities to banks and bondholders of over 2.1 trillion yuan ($305 billion). But the company said it was having trouble converting it into cash to repay lenders.
