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Evergrande creditors make last push to avert liquidation order

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Evergrande’s international creditors are pressing for a last-minute agreement to avert a court order to liquidate the highly indebted Chinese property developer.

Investors in Evergrande’s debt have been talking to the company about various restructuring options in recent days, two people close to the talks said, aware that a formal liquidation — which could be ordered within hours — would be likely to mean lower recovery prospects for their investments.

The talks have taken on a renewed urgency since Hong Kong’s High Court is due on Monday to hear a petition from an Evergrande creditor, Top Shine Global, asking for the winding-up of the company that defaulted in 2021 with $300bn of liabilities.

Two people close to the last-ditch talks said creditors had been placing growing pressure on Top Shine to drop the lawsuit, a move that could enable restructuring talks involving debt to equity swaps to continue. Top Shine’s lawyer did not immediately comment on Sunday, and the company itself could not be reached for comment.

Evergrande has been at the heart of China’s property crisis and the indebted developer has encapsulated concern over the scale of problems in the sector, which once accounted for a quarter of the country’s economic growth.

Representatives for some of its creditors have previously said that liquidation could have a “catastrophic effect” on other developers in China, and on Chinese companies’ ability to raise money in international capital markets.

Since Evergrande’s default other developers have also run into problems as Chinese authorities have tried to rein in excessive leverage in the sector.

Hong Kong-listed Evergrande has been struggling to finalise a restructuring. Its plans were derailed in September when it failed to proceed with an offshore debt refinancing due to an unspecified regulatory investigation. 

The liquidation hearing in Hong Kong has been adjourned several times but in October Judge Linda Chan gave Evergrande “one last opportunity” to formulate a new restructuring proposal, warning that otherwise it was “very likely” to be subject to a winding-up order.

The last-minute efforts to try to negotiate show the limited options that international creditors have to recover some of their investments, people familiar with the talks said.

The winding-up petition was probably “a negotiating tool” to try to force a better restructuring deal, one of the people familiar with the negotiation said.

Days ago Evergrande proposed a debt-to-equity swap that offered creditors minority stakes in the company and two of its Hong Kong listed units, two people with knowledge of the matter said. No such deal has yet been agreed, however, and some creditors have said they want majority stakes, according to two people with knowledge of the talks.

One problem in any attempt to strike a deal over Evergrande is the role of Hui Ka Yan, its chair and founder, in any deal.

Hui was placed under “mandatory measures” by Chinese authorities on suspicion of involvement in “illegal crimes” in late September, the company said in a stock exchange filing at the time. He had a controlling 60 per cent stake in the group at the end of 2022, according to corporate filings.

Further restructuring efforts “have little meaning now”, one of the people familiar with the negotiation said. “You can’t get any investors on board with a less favourable deal and, most importantly, you can’t find the person in charge of the company to sign it off.”

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