HONG KONG -- China Evergrande Group faces more bond interest due dates on Monday as a formal default nears and creditors begin to join forces to try to reclaim their money from the embattled property developer.
Evergrande will need to pay three semiannual offshore bond coupons totaling $148.1 million by midnight New York time, according to data compiled by Refinitiv. The developer -- the world's most indebted, with more than $300 billion in liabilities -- missed two earlier offshore bond payments totaling $129 million in late September and has a further $573 million coming due before the end of the year.
The company has also missed payments to banks, suppliers and small investors and been forced to suspend work on around half of its 800 development projects across China. It hopes to sell assets and attract new investors to deal with the liquidity crisis, and Chinese media have reported the company is close to selling a majority stake in its property management business to rival Hopson Development Holdings.
"A deal with Hopson does raise hopes of Evergrande wiring the coupons before the grace period runs out," said a Hong Kong-based portfolio manager at a fund that owns some Evergrande bonds. "However, looking at the liabilities that are coming due, this money barely scratches the surface."
The parent company's 61% stake in Evergrande Property Services Group is worth $4.3 billion based on the unit's last closing price in Hong Kong.
Evergrande said in a recent filing said that it has 240 billion yuan ($37.2 billion) in total debts due over the next year, compared with cash and bank deposits of 161.6 billion yuan as at June 30. The repayments include $7.7 billion of bonds that mature in 2022, according to Refinitiv.
Evergrande has a 30-day grace period to make good on missed coupon payments on its offshore bonds, according to offering prospectuses. It failed to pay its first coupon payment on Sept. 23, meaning formal default is now less than two weeks away.
Two bondholders said they are working with advisers to send a claim to Evergrande and its legal representatives seeking the payment. If that fails, they plan to form a creditors' committee to protect their interests and ensure they have a voice during liquidation proceedings. Fitch Ratings estimates investors could recover less than 10% of sums due if Evergrande goes bankrupt.
Law firm Kirkland & Ellis and investment bank Moelis, on behalf of investors holding $5 billion of Evergrande debt, have reached out to the developer seeking information on the company's financial situation and assurances that offshore assets will not be sold off while negotiations to reclaim the bond coupons are on.
Contact with Evergrande was initiated before the first missed bond interest payment but the advisers have had no "meaningful contact" as yet, they said in a call with bondholders on Friday.
"What we don't want is to have a situation where so-called offshore assets are being monetized in some way and the value of those assets being leaked to other parties, whether that be onshore or elsewhere," Neil McDonald, a restructuring partner at Kirkland & Ellis said during the call.
Evergrande is saddled with off balance sheet debt, too, such as debt sold to small investors and wealth management trust loans.
It has also guaranteed bonds issued by affiliates. One such debt is a $260 million note from Jumbo Fortune Enterprises, a joint venture involving Evergrande's main domestic operating unit. The bond matured on Oct. 3 and has not been paid, according to Bloomberg.
Holders of the bond have banded together to form a creditors' committee, with law firm White & Case advising several investors with regards to Jumbo Fortune, Bloomberg said.
Evergrande's woes are shining a light on the excessive leverage across China's property sector. Companies big and small are struggling to pay off debt on time.
Fantasia Holdings, a smaller Shenzhen-based developer, failed to redeem a $205.7 billion bond this month and the company is scrambling to raise cash. On Oct. 5, S&P Global Ratings slashed its rating on Sinic Holdings, a Shanghai developer whose shares crashed last month, citing "imminent default risk." Sinic has a $246 million offshore bond due Oct. 18.
Other Chinese developers are seeking to buy time to repay debt with permission of their bondholders.
Modern Land (China) is seeking a three-month extension on a $250 million bond due Oct. 25, saying on Monday that its chairman and president will together provide $124 million in loans to boost liquidity in the interim.
Also on Monday, Xinyuan Real Estate said that it expects 90% of its bondholders to accept an offer to exchange new two-year bonds in place of a $229 million issue maturing this Friday. It would also repay 5% of the principal.
Fitch Ratings, though, downgraded Xinyuan from "CCC" to "C," the last notch before default. It called the company's move a "distressed exchange."
Another developer, Guangdong-Hong Kong Greater Bay Area Holdings, is seeking to replace $277.2 million in bonds maturing in December with new two-year notes. Fitch said it did not consider the move by the company, previously known as Hydoo International Holding, to be a distressed exchange.
S&P estimates that property developers it rates are due to redeem 480 billion yuan in domestic and offshore bonds over the next year, equal to almost a fourth of their free cash reserves.
"Some weaker property names in China have been hurt by the Evergrande situation for some months," the agency said in note late last month. "As bond prices sink for a number of more marginal operators, they have lost access to offshore refinancing. Developers with concentrated maturities and deteriorating liquidity are exposed."