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China debt crunch

Evergrande aims for restructuring plan within 6 months as creditor talks begin

Chinese property giant has debts of more than $300 billion

Evergrande's headquarters in Shenzhen, China. The property developer is meeting with creditors on Jan. 26, its first communication with them since its financial troubles came to light last year.   © Reuters

HONG KONG (Reuters) -- China Evergrande Group said it aimed to have an initial restructuring plan within six months during a long-awaited call with creditors on Wednesday, its first communication with them since the property giant's finances began to unravel last year.

Once China's top developer, Evergrande has debts of more than $300 billion and is struggling to repay creditors, suppliers and investors in wealth management products. It missed some dollar bond payments last month, sparking calls for talks.

Nearly $20 billion of Evergrande's international bonds are now deemed to be in default.

The company's newly-appointed executive director Siu Shawn, who is also the chairman of Evergrande New Energy Vehicle Group Ltd, said on the call that Evergrande was working on a comprehensive restructuring plan, which it aimed to propose within six months, adding that it hoped to work with creditors to achieve a risk management solution, a participant said.

Evergrande had on Monday sought more time from its offshore bondholders to work on a "comprehensive" debt restructuring plan, after a group of creditors said they were ready to take "all necessary actions" to defend their rights if it did not show more urgency to resolve a default.

The company's debt crisis has engulfed other Chinese developers, roiled global financial markets in the past year and contributed to a slump in China's property market, which accounts for a quarter of its economy.

A member of the developer's risk management committee, Chen Yong, also joined the 25-minute call which included prepared answers to questions, the participant added.

Chen is a compliance director of state-owned Guosen Securities. Andrew Huang, Evergrande's Hong Kong branch general manager, was also be present on the call, said the participant, declining to be named due to confidentiality constraints.

Evergrande set up the risk management committee in December with mostly members from state enterprises, as the Guangdong provincial government leads work on the firm's restructuring.

Evergrande has also asked the bondholders to disclose their holdings by the middle of this week to identify investors for communications, and hired more financial and legal advisers to follow up on creditor demands.

Shares in Evergrande closed up 1.7% on Wednesday, while its defaulted dollar bond due April 2022 dropped to 15.997 cents on the dollar from 17.074 overnight, Duration Finance data showed.

Rating agency Moody's said in a report on Wednesday that covenant packages in Evergrande's offshore issuance had become increasingly lax, loosening or eliminating key protections, and putting the recovery prospects for offshore creditors in peril.

Offshore bondholders rank behind the creditors of Evergrande's more than 1,950 onshore subsidiaries, Moody's added, and none of which guarantee the dollar bonds.

Moody's said weakened covenants and increased debt carve-outs had allowed Evergrande to increase leverage materially.

"Flexible covenants have left Evergrande and other Chinese property developers with a corporate family rating of B3 negative and below vulnerable to the highly cyclical nature of China's real estate market," Jake Avayou, a Moody's vice president and senior covenant officer, said.

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