The delisting crisis is lifted! Evergrande entered a critical period of debt restructuring

The Evergrande agreement arrangement meeting will be postponed by 29 days to September 26.

Liu Wei/From Beijing

With less than 30 days left before the "delisting" limit, China Evergrande officially resumed trading.

On August 28, the share price of China Evergrande Group (hereinafter referred to as "China Evergrande", 03333.HK) fell sharply on the first day of resumption, falling 78.79% to HK$0.35 as of the close, with a total market value of HK$4.622 billion.

The day before, China Evergrande released its interim performance report, and the 2023 interim report showed that China Evergrande's revenue was 128.18 billion yuan, a year-on-year increase of 43.57%, and gross profit continued to record 9.8 billion yuan, with a gross margin of 7.64%.

On the first day of resumption, China Evergrande also postponed the meeting of the overseas debt restructuring agreement, which is also the most urgent issue that Evergrande needs to solve at present.

Regarding questions related to debt restructuring, Evergrande responded: "There is no more news."

"The positive side of Evergrande's resumption of trading is that it has survived the delisting crisis, and its performance meets the requirements for listing and resumption. However, the performance on the first day of resumption of trading shows that the market is full of worries about Evergrande's prospects, and in this context, the difficulty of negotiating Evergrande's overseas debt restructuring agreement can be seen. Xu Jun, a senior partner of Shanghai Everbright Law Firm, the primary administrator of enterprise bankruptcy, said in an interview.

Xu Jun believes that at this stage, Evergrande's mentality as a debtor in the negotiation of the debt restructuring agreement is particularly important, whether to choose a strong man to break his wrist, cherish and continue the former Evergrande brand, or allow the restructuring to fail or even go bankrupt, for Evergrande is both a difficult choice and an easy choice to make.

Year-on-year performance "picks up"

According to the data of the half-year report, as of June 30, 2023, in the first half of this year, China Evergrande achieved revenue of 128.18 billion yuan, a year-on-year increase of 44%; Gross profit was 9.8 billion yuan, a year-on-year increase of 38%.

At the same time, the loss during the period was 39.248 billion yuan, a year-on-year decrease of 54.45%. Among them, the operating loss was 17.38 billion yuan, a decrease of 31.38 billion yuan over the same period last year; the non-operating loss (including litigation, land recovery, equity disposal and asset appraisal impairment and other losses) was 15.03 billion yuan, a decrease of 18.43 billion yuan; and the loss attributable to shareholders of the company was 33.012 billion yuan, a year-on-year decrease of 50.23%.

In the first half of 2023, Evergrande said that it seized the short-lived "Xiaoyang Chun" of the property market and promoted the de-sales of the group, and the group achieved a contracted sales amount of RMB 33.413 billion, a contracted sales area of 5.115 million square meters, and a cumulative sales return of RMB 27.1 billion in the first half of the year.

As of June 30, 2023, the Group had a land bank of 190 million square meters. In addition, the Group has also participated in 78 old renovation projects, including 55 in the Greater Bay Area (34 in Shenzhen) and 23 in other cities.

At the end of the reporting period, China Evergrande remained insolvent. As of the end of June, Evergrande's total liabilities reached 2.39 trillion yuan, 1.78 trillion yuan after excluding contract liabilities of 603.98 billion yuan, and the total asset value in the same period was 1.74 trillion yuan.

During the same period, Evergrande had a total of RMB13.381 billion in funds on hand, of which cash and cash equivalents were only RMB4.047 billion, a decrease from the end of 2022, and more than RMB9 billion was restricted funds.

At the same time, Evergrande is also riddled with a number of lawsuits, involving hundreds of billions of yuan in finance.

As of the end of June, various parties had filed lawsuits against China Evergrande over the settlement of outstanding loans, payables due for projects and daily operations, delays in the delivery of a number of projects and other matters, with a total of 2,229 pending litigation cases with a target amount of more than 30 million yuan, and a cumulative target amount of about 534.992 billion yuan.

For the next operation, China Evergrande said that the company will resolutely assume the main responsibility of self-rescue and insurance, and do a solid job in ensuring the specific work of handing over the building; Do a good job in the continuous operation of automobiles, property services and other sectors, actively introduce high-quality resources, and enhance the vitality of development; Accelerate the restructuring of overseas debts to protect the long-term interests of all types of creditors; Continuously improve internal risk control and management performance, stabilize the team, and steadily promote daily operations.

Debt restructuring has entered a critical period

On March 21, 2022, China Evergrande began to suspend trading. According to the relevant regulations, if a listed company continues to suspend trading for 18 months, the Hong Kong Stock Exchange has the right to delist its shares, and China Evergrande has suspended trading for more than 17 months.

Now China Evergrande has resumed trading at the last minute, removing the risk of delisting and delisting. The official resumption of trading of China Evergrande also means that the three listed companies of Evergrande, China Evergrande, Evergrande Property and Evergrande Automobile, have all successfully resumed trading.

Prior to the resumption of trading in China Evergrande, Evergrande Property and Evergrande Auto had already resumed trading. Evergrande Auto resumed trading on July 28, plummeting nearly 70% on the same day, and the current stock price is 1.22 Hong Kong dollars / share, with a market value of 13.229 billion Hong Kong dollars; Evergrande Property resumed trading on August 3, falling nearly 50% on the same day, and has been reduced to "penny stocks" since the consecutive plunges, with the latest total market value of 7.243 billion Hong Kong dollars.

With the completion of the resumption of trading, the most urgent thing for China Evergrande now is the restructuring of its offshore debt.

In terms of overseas debt, China Evergrande said that the company has steadily advanced the work related to overseas debt restructuring and signed an overseas restructuring support agreement with creditors in April. The Company obtained approval from the courts of the three jurisdictions to convene a meeting of creditors to advance the restructuring agreement arrangement. The Company was also granted by the High Court of Hong Kong to adjourn the winding-up petition hearing.

In fact, August 28 is also the time for China Evergrande to hold a creditor voting meeting on the arrangement of three sets of offshore debt restructuring agreements, and this creditors' vote meeting and subsequent approval hearing are crucial to whether China Evergrande's overseas debt restructuring plan can officially take effect.

However, the meeting will be postponed for the time being. According to the announcement issued by China Evergrande at noon on August 28, the company decided to extend the time limit for creditors of Evergrande agreement arrangement to consider, understand and evaluate the terms of the Evergrande agreement arrangement, and to give the creditors of the Evergrande agreement arrangement more time to consider the group's recent developments, so the Evergrande agreement arrangement meeting will be postponed for 29 days to September 26.

In order to align the timetables of the Evergrande Agreement, the Scenery Agreement Arrangement and the Space-based Agreement Arrangement as much as possible, the Scenery Agreement Arrangement Meeting and the Space-based Agreement Arrangement Meeting will be postponed by 28 days to September 25.

Song Ding, a CDI researcher at a think tank, believes that at present, all parties are willing to create a pattern of Evergrande's debt restructuring, or start from the interests of all parties and focus on the soft landing of this "giant beast", but this does not mean that it can fundamentally solve the problem, because on the one hand, Evergrande has become insolvent, on the other hand, it is still very difficult to look at the big reversal of market conditions.