(July 18): China Evergrande Group is seeking to complete one of the country’s biggest debt restructurings after posting US$81 billion (RM367.7 billion) in losses over two years during the housing industry meltdown.

The defaulted real estate giant asked to convene meetings for offshore creditors to approve its credit overhaul plan, after reporting long-delayed financial statements for 2021 and 2022. Court hearings are scheduled to take place next week, exchange filings showed late Monday (July 17).

“There’s potential for approval of its debt-restructuring plan,” said Bloomberg Intelligence analysts Daniel Fan and Adrian Sim. “China Evergrande might act fast to avoid possible breakdown due to offshore litigation for its defaults.”

The losses at China’s most indebted developer shed light on the scale of its financial woes during a housing crisis that has rocked the world’s second-largest economy since the government restricted borrowing by developers.

The figures, which also showed Evergrande’s liabilities swelled to US$340 billion, dented sentiment in China’s property sector on Tuesday. A Bloomberg Intelligence gauge of developer shares closed 3% lower, the biggest decline in four weeks. Dollar bonds sold by Evergrande barely moved and were traded at around 6 cents on the dollar.

Evergrande said it seeks to convene meetings with various classes of bondholders as the restructuring plans will be heard in courts in Hong Kong and the Cayman Islands on July 24 and 25. In April, it said investors holding 77% of its Class A bonds backed the plan, while just 30% of Class C holders endorsed it.

To implement one of China’s largest debt restructurings ever, the company needs approval from at least 75% of each group of creditors.

Adding to the urgency, Evergrande is also facing a winding-up hearing on July 31. Several Chinese developers are contending with similar lawsuits from foreign stakeholders frustrated by what they see as the slow pace of restructuring talks. Such petitions can potentially force a court-ordered liquidation.

Soaring liabilities

Evergrande reported a loss attributable to shareholders of 105.9 billion yuan (RM66.96 billion) for 2022, on top of a 476 billion yuan loss the previous year, the filings showed.

The earnings marked the company’s first two full-year losses since its 2009 listing, and represented a sharp reversal from a profit of almost 8 billion yuan in 2020.

A brief rebound in China’s housing market earlier this year has been snuffed out as sales and prices resumed declining in June. That has fuelled expectations for the government to take more steps to revive demand.

Evergrande saw its sales plummet during the crisis. Revenue plunged by half in 2021 to about 250 billion yuan, before falling further last year to 230 billion yuan, missing the average estimate of six analysts surveyed by Bloomberg.

The developer’s debt pile continued to balloon, with total liabilities reaching 2.58 trillion yuan at the end of 2021, or almost US$360 billion, on soaring undelivered projects. That figure fell slightly to 2.44 trillion yuan as of December last year.

The biggest liabilities last year were from trade and other payables, which stood at around 1 trillion yuan as of December. Current borrowings fell slightly from a year earlier to 587 billion yuan.

“The results are not encouraging at all,” said Ting Meng, a senior credit strategist at Australia & New Zealand Banking Group. While not a game changer, they confirm how the company has been in deep distress and struggling with operations and repayments, Meng said.

Trading resumption

Still, Evergrande could be closer to resuming trading of its shares after reporting the delayed statements. Trading of the shares was suspended since March 2022, risking a delisting if there’s no resumption within 18 months.

“Evergrande’s successful publication would help to avert a forced delisting and advance the company’s debt restructuring,” said Leonard Law, senior credit analyst with Lucror Analytics Pte. “That said, the results do not really matter ultimately, as we believe the business is already broken.”

Others remain unconvinced that the shares can resume trading after Evergrande’s auditor, Prism, said it was unable to obtain sufficient audit evidence to give an opinion on the statements.

It remains “highly uncertain” given that the auditor signalled scepticism over the company’s ability to continue as a going concern, said Zerlina Zeng, senior credit analyst at CreditSights.

Mounting lawsuits and pressure to deliver projects are also weighing on the developer. Evergrande faced 1,601 lawsuits involving 383 billion yuan related to its mainland property unit as of May, it said in an earlier filing.

Evergrande has to prioritise the use of funds to deliver incomplete homes, hindering the debt overhaul process, Zeng said. “It is not easy to ringfence good assets for debt restructuring.”