Tue. May 24th, 2022

International mortgage holders in Evergrande, the heavily indebted real estate group that is in the midst of a property crisis in China, have hired a foreign lawyer and warned of legal action following a lack of “substantial involvement” of the company.

A group of mortgage lenders, representing billions of dollars in Evergrande’s debt and represented by law firm Kirkland & Ellis and investment bank Moelis, said it had retained law firm Harneys because it “was left with no choice but to seriously consider enforcement action.” . .

The announcement is the most important move by foreign bondholders and could mark the start of a legal battle months after Evergrande first missed payments in a saga marked by a lack of official disclosure.

“Despite the efforts to engage in substantive dialogue with the group [Evergrande], including through information requests, to date the [bondholder group] received little more than vague assurances of intent, which are lacking in both details and content, ”the mortgage holders’ advisers said on Thursday.

The foreign investor group is “prepared to take all necessary steps to vigorously defend its legal rights and protect its legitimate interests”, they added.

Evergrande only missed interest payments on its foreign bonds in September and was deemed defective by rating agency Fitch in December. The liquidity crisis has since engulfed the country’s entire real estate sector, which accounts for more than a quarter of China’s economic output.

Evergrande has more than $ 300 billion in liabilities, of which about $ 19 billion was borrowed on international bond markets and has included large asset managers, such as BlackRock, among its investors.

Chinese developers are significant lenders in high-yield debt markets in Asia, where Evergrande’s peers such as Kaisa and Fantasia have also defaulted on their debt. Yields on more risky Chinese debt have risen to their highest level since the global financial crisis in 2008-’09 due to the country’s property problems, while policymakers in Beijing have taken steps to alleviate monetary conditions.

The company’s crisis has been closely watched by global markets and policymakers. Andrew Bailey, governor of the Bank of England, pointed to “contamination” in China on Wednesday, but said it appeared to be under control.

“I would say at the moment what we are seeing is a fairly protracted solution to that. [Evergrande] . . . we see contamination within China, but it seems to be under control, ”he told the British Parliament’s Treasury Select Committee.

“They manage it by effectively preferring land over foreign creditors,” he added. “But it is of course a concern for us.”

The international bondholder group complained in October about a lack of “significant involvement” of the company and also expressed concern about planned asset sales.

Evergrande has embarked on a restructuring process that will be one of China’s largest ever and last month set up a risk committee involving significant representation of Chinese state-owned companies. The group also said it had resumed work on 92 per cent of its projects and had successfully delayed payments on renminbi-denominated debt this month following a call with investors.

The mortgagee group said it “recognizes the[Evergrande]group’s recent efforts to resume more than 90 percent of its construction projects, and wants to be part of a solution to help the group during these difficult times ”.

It added: “The group’s lack of involvement and opaque decision – making to date is contrary to well-established international standards in restructuring processes of this magnitude and tarnishes foreign investors’ views on the viability of expecting equitable treatment when in the credit of Chinese investing companies. “

Evergrande did not immediately respond to a request for comment.

An Evergrande bond maturing in 2025 traded at 11 cents on the dollar this week, close to its lowest level ever.

Additional post by William Langley in Hong Kong

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