China Evergrande Secures Adjournment for Court Hearing, Buoying Hopes for Debt-Restructuring Plan

McDonald confirmed that the creditors he represents may still file for Evergrande's liquidation if the petitioner withdraws the petition.

China Evergrande Group (3333.HK) has successfully secured an adjournment for a court hearing regarding a liquidation petition until January 29th, providing the troubled property developer with additional time to finalize an overhauled offshore debt-restructuring proposal.

This decision was granted without opposition from the petitioner’s attorney, marking a pivotal moment for the world’s most indebted developer, burdened with over $300 billion in liabilities.

Hong Kong High Court Justice Linda Chan had previously indicated that the Monday hearing would be the final opportunity to decide whether to liquidate Evergrande in the absence of a “concrete” restructuring plan. Following the adjournment, Evergrande’s stock rebounded, surging by over 13%.

Evergrande’s default on offshore debt in late 2021 exemplified the debt crisis engulfing China’s property sector. In a bid to avoid liquidation, the company scrambled to revise its restructuring plan in the preceding week.

Neil McDonald, a partner at Kirkland & Ellis, a legal advisor to a group of offshore creditors opposing the revised terms, stated, “Evergrande somewhat surprisingly has obtained some further time to rethink its plans.” However, he cautioned that if Evergrande fails to produce a universally accepted plan by all creditor classes, it is likely to face liquidation at the next hearing.

The petitioner, Hong Kong-based investment firm Top Shine, originally filed the petition in June 2022, alleging that Evergrande had not fulfilled an agreement to repurchase shares from the developer’s Fangchebao unit. Surprisingly, the petitioner’s attorney did not oppose the adjournment during the Monday hearing.

Justice Chan instructed the petitioner to inform other creditors one week before the next hearing if they decide to withdraw the petition, allowing those creditors to proceed with action if they choose to do so.

McDonald confirmed that the creditors he represents may still file for Evergrande’s liquidation if the petitioner withdraws the petition.

Evergrande’s attorney informed the court that the developer intends to “refine” its restructuring proposal in the next five weeks.

The revised terms include offering shares to creditors in China Evergrande Group, Evergrande Property Services Group (6666.HK), and Evergrande New Energy Vehicle Group (0708.HK), along with certificates granting the right to proceeds from disposable assets, replacing the previous proposal involving equity-linked instruments and new bonds.

The ratio of shares offered varies for Class A and Class C creditors, and the list of assets available for fundraising differs as well. Justice Chan emphasized that Evergrande must engage in direct discussions with relevant Chinese authorities regarding the new restructuring terms and that the plan must garner support from all creditor classes by the next hearing.

Evergrande had failed to secure the 75% approval required from Class C creditors for the original terms proposed in March.

The rejection of the revised plan by creditors further complicates the situation.

If Evergrande undergoes liquidation, it would escalate pressure on a struggling property sector, constituting a quarter of the world’s second-largest economy.

The company’s financial troubles have been a significant concern for global investors, especially as government stimulus measures have faced challenges in revitalizing the post-pandemic economic recovery, with slowing property sales and numerous unfinished homes exacerbating the issue.

Evergrande has been laboring on a debt restructuring plan for nearly two years, but its original plan faltered in late September due to investigations into its billionaire founder, Hui Ka Yan, for suspected crimes.

Regulatory denials for issuing new U.S. dollar bonds added to the company’s woes during this turbulent period.