By Clare Jim and Xie Yu
HONG KONG (Reuters) – Country Garden has told some of its offshore creditors it plans to file a debt restructuring proposal in the second half of this year, two sources said, as the embattled developer scrambles to prevent a petition of liquidation.
China’s largest private developer defaulted on its $11 billion in offshore bonds late last year and is filing for liquidation in Hong Kong over default on a $205 million loan. The first court hearing was set for May 17.
A growing list of Chinese developers have defaulted on their repayment obligations since the sector plunged into an unprecedented debt crisis in mid-2021, and a handful have been ordered to liquidate by courts so far.
China Evergrande Group was ordered to be wound up in late January by a Hong Kong court after it failed to offer a concrete restructuring plan to creditors more than two years after defaulting on its offshore debt.
If Country Garden is able to present a debt restructuring proposal to its offshore creditors and get their approval for implementation, it will help the developer strengthen the liquidation petition.
A liquidation order against Country Garden would worsen the outlook for China’s real estate sector, which has lurched from one crisis to another over the past two years following a regulatory crackdown on high leverage among developers.
Country Garden aims to present a preliminary restructuring proposal to an ad hoc group of bondholders before June for negotiation, and to publish it to the broader list of creditors in the third quarter, one of the people said.
The company is doing due diligence on its business health, which is necessary to work on any restructuring proposal.
Country Garden’s creditors, including a bank credit group, are now reviewing the data and information provided to them, but formal negotiations on restructuring terms have not yet begun, the sources and two separate sources said. who declined to be named because the conversations were private.
Country Garden would not comment on the timeline of the proposal, but said it was working with the creditor groups and their advisers fairly. Together with the main groups of bondholders and lenders, he hoped to complete the due diligence as soon as possible and then start the discussion on the terms of restructuring.
CLEARANCE FOLLOWS
The liquidation petition against Country Garden increases pressure on the developer to come to the negotiating table for debt restructuring talks, some of its offshore creditors, advisers and analysts said.
In liquidation proceedings involving companies in default, a company needs to convince the court that it has progressed on a debt restructuring plan that would be supported and accepted by the majority of its creditors.
In previous cases in Hong Kong, the court made a number of renewals on the hearing before a decision.
Country Garden hired Kroll to conduct a liquidation analysis for the liquidation process, Reuters reported last month, to assess potential recovery rates for creditors who may file in court.
Its shares in Hong Kong have been suspended since April 2, pending the publication of 2023 results. The firm delayed the results last month saying it needed to gather more information to make estimates and appropriate accounting judgments.
Country Garden said this week it had won approval from bondholders to further delay payments on three onshore bonds until September, to give it more time to raise funds.
(Reporting by Clare Jim and Xie Yu; Editing by Sumeet Chatterjee and Stephen Coates)
