Evergrande is said to propose two offshore-debt restructuring options

China Evergrande Group, the developer at the heart of the nation’s property crisis, has been discussing a restructuring proposal with creditors that includes two options for extending payment deadlines on unsecured offshore debt, people familiar with the matter said. 

One of the options would entail installment payments on principal of such debt with the time for total repayment reaching as long as 12 years, according to the people, who asked not to be identified as the matter is private. The extension would be done by issuing new notes to replace the old, and the coupons for the new securities would be set in a range with a lower end of about 2%, the people said.

The other option asks creditors to swap part of the debt into shares of the Hong Kong-listed company and its auto and property-management units via the issue of new hybrid securities such as convertible bonds, according to the people. Maturities would also be extended through installment plans, but for a shorter period of time and the coupons would be set at around 6% to 7%. Terms of the proposals could change as Evergrande seeks feedback from major creditors.

A 12-year payment extension is “by far the weakest proposal observed” and “would seem out of question” for offshore bondholders, according to Mervyn Teo, a credit analyst at DBS Bank Ltd. Other distressed Chinese builders have generally proposed ones lasting about three to seven years in their debt-restructuring offers, along with coupons of 4% to 8%, he said. 

Teo expects bondholders to negotiate for a shorter extension, higher coupons or additional credit enhancements. 

Still, Evergrande’s proposals are the most detailed glimpse yet of its plan for restructuring, which would be one of China’s biggest ever with implications for banks, trust firms and millions of homeowners. The clock is ticking for the world’s most indebted developer, which first defaulted on dollar bonds more than a year ago and has some $16.6 billion of outstanding dollar notes. The company faces a March 20 court hearing in Hong Kong on a winding-up petition that could result in asset liquidation.

A media representative for Evergrande didn’t offer comment when reached by Bloomberg News.

The builder held its first in-person meeting with members of an ad-hoc group of bondholders in Hong Kong last week.

That came after Evergrande recently missed another self-imposed deadline to publicly deliver a preliminary restructuring blueprint by the end of 2022. The company expected to receive support from offshore creditors by the end of February or early March, the developer’s legal representative said during a winding-up hearing in late November. 

The ad-hoc group of creditors also presented a “counteroffer” to Evergrande’s management last week, involving key revisions aimed at sweetening the firm’s proposals, according to the people. 

Creditors had also previously requested that Chairman Hui Ka Yan inject at least $2 billion of his personal wealth into the builder.

Evergrande’s dollar bonds trade around 10 cents, according to data compiled by Bloomberg. – BLOOMBERG