Credit：Visual China

Evergrande is currently unqualified for issuance of new notes as its subsidiary Evergrande Real Estate Group Limited is under investigation by the China Securities Regulatory Commission (CSRC), China’s top securities regulator, according to a filing with the Hong Kong Stock Exchange (HKEX) on Sunday. Evergrande suggested it failed to meet requirements of laws and regulations. The company has to prove that any proposal of new debt issuing under restructuring has complied with the Trial Administrative Measures for Overseas Securities Offering and Listing of Domestic Companies released by CSRC and the Administrative Measures for the Review and Registration of Mide-to-Long-Term Foreign Debt of Companies introduced by the National Development and Reform Commission (NDRC), China’s state planner, according to the filling.

Days prior to the filing, Evergrande disclosed it won’t hold meetings about proposed debt restructuring on September 25 and 26. In a filling with HKEX on Friday, the property developer said it made the decision to cancel the planned meeting because of worse-than-expected sales since it announced the meeting schedule in March. “Based on the company’s current situation and consultations with its advisors and creditors, the company considers it necessary to re-assess the terms of the proposed restructuring to meet the company’s objective situation and the demand of the creditors,” it said. while not elaborating creditors’ demand, the company said it would make public statement if there were any change about terms of restructuring proposal.

Evergrande didn’t disclose how creditors endorsed the restructuring plan recently. A Hong Kong court in April has adjourned the hearing for a winding-up petition against Evergrande from July 31 to October 30, which could force it into liquidation. The company said in April that creditors holding more than 30% of a class of debt including margin loans and repurchase obligations have acceded to a restructuring support agreement, while the scheme of arrangement in Hong Kong requires 75% in value of creditors in each creditor class to vote for. Evergrande filed bankruptcy protection under Chapter 15 in U.S. , which was deemed as an effort to facilitate finalizing an offshore-debt restructuring plan.

The cancellation of meeting due to sales was a surprise as Evergrande just posted improved financial performance last month. In a report of interim financial results to HKEX in August, the company posted net loss of RMB33 billion (US$4.53 billion) from January to June, narrowing more than 40% from a RMB66.4 billion loss in the same period last year. Operating losses in the first half of the year were RMB17.38 billion, more than 64% down from a year earlier, and Losses related to return of lands, impairment losses on financial assets and other non-operating losses narrowed 55% to RMB15.03 billion. Revenue in the first half jumped 44% year-over-year (YoY) to RMB128.18 billion, and gross profit rose 38% to RMB9.8 billion.  

In the interim report, Evergrande vowed to assume responsibility of self-rescue and risk resolving, ensure all the work related to home delivery well done, sustain operations of automobile, property service and other businesses, actively introduce external quality resources, and accelerate offline debt restructuring to protect creditors’ long-term interests.

Evergrande first declared a default on its debt in late 2021 when the second largest property developer in China had a total of more than US$300 billion in liabilities. It triggered a cross-default of all outstanding U.S. dollar bonds on December 3, 2021, due to the failure to fulfill the guarantee responsibility related to a US$260 million private placement debt.

Evergrande officially confirmed its state of insolvency in the past two years at financial reports disclosed in April. The property company had about RMB1.84 trillion (US$255.6 billion) of assets as of the end of 2022, decreasing RMB270 billion, or 12.8%, from a year earlier. The asset value shrank by 20%, from about RMB2.30 trillion of assets as of the end of 2020. Evergrande's debt load reached RMB2.44 trillion as of December 31, 2022, reducing RMB140 billion from late 2021. The insolvency gap increased from RMB 473.1 billion to RMB599.1 during the year 2022.

Of the above liabilities, Evergrande's borrowings totaled RMB612.39 billion at the end of 2022, up 0.8% RMB5.01 billion, or 0.8%, on a year-over-year basis. Some of these borrowings were secured by the company's land, investment properties, properties under development, self-owned completed properties, cash at banks, and equity interests in subsidiaries.

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