As per two Reuters sources, a group of China Evergrande’s bondholders have selected investment bank Moelis & Co and law firm Kirkland & Ellis as advisers for a potential restructuring of a tranche of its bonds. The move is focused on the $20bn of offshore bonds that the distressed real estate developer has outstanding in the event of a default. This comes after:
- The Ministry of Housing & Urban-Rural Development informed banks in a meeting that Evergrande will not be able to meet its payments due on September 20
- S&P downgraded Evergrande to CC with a negative outlook over its “depleted liquidity”
- The government hired law firm King & Wood Mallesons to examine Evergrande’s finances, as per Bloomberg sources
- Evergrande themselves hired financial advisers Houlihan Lokey (China) and Admiralty Harbour Capital to assess its capital structure and liquidity and “explore all feasible solutions to ease the current liquidity issue and reach an optimal solution for all stakeholders as soon as possible”, as per an exchange filing
Adding to the negative news flow, a unit of the distressed company called for a trading suspension on its onshore bonds, indicating a higher likelihood of an impending restructuring or default, as per market participants cited by Reuters. However, the recent recovery in its dollar bonds suggest that investors are expecting the developer to secure a restructuring deal. Its 8.25% bonds due March 2022 have risen ~5 points since Tuesday to 31 cents on the dollar while its 12% bonds due January 2024 have risen ~3 points to 28.95 cents on the dollar. Dollar bonds issued by its units Hengda and Scenery Journey however continue to trade lower at distressed levels of ~17.5 cents on the dollar.
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