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Bondholders Could Sue Evergrande Over Lack of Engagement

Ad hoc group says it has seen no substantive response from developer with offshore creditors to formulate viable restructuring plan

China Evergrande shares dropped on Monday after several of employees of its wealth management unit were arrested on Saturday.
Saddled with more than $300 billion in liabilities, the Evergrande Group is undergoing a debt restructuring after it defaulted in late 2021. Photo: Reuters.


Shares in embattled China Evergrande Group rose more than 4% on Thursday on the back of Beijing’s monetary easing amid reports that bondholders were seeking legal action over the developer’s lack of communication about its restructuring.

The ad-hoc offshore shareholder group of China Evergrande said it has seen no substantive engagement from the firm with offshore creditors to formulate a viable restructuring plan, despite the firm’s repeated assurances.

The group, represented by law firm Kirkland & Ellis and investment bank Moelis & Company, said it has no option but to seriously consider enforcement actions and it is prepared to take all necessary actions to defend its legal rights.

The international bondholders had retained Harneys, the British Virgin Islands offshore law firm, according to the Financial Times on Thursday.

Lawyers are already heavily involved in the Evergrande saga. In October 2021, US firm Kirkland & Ellis, advising a group of international bondholders, complained of little meaningful engagement from the company.

Last year, Beijing appointed Sino-Australian law firm King & Wood Mallesons to investigate the company. Rosen Law Firm, a US class-action specialist, is investigating potential securities claims on behalf of Evergrande shareholders.


UK Watching for Impacts

Evergrande’s struggle with $300 billion in liabilities did not threaten financial stability in the UK, Bank of England governor Andrew Bailey said.

The BoE was closely watching events at Evergrande, Bailey told the British parliament’s Treasury committee. “We are seeing contagion within China but it seems to be being kept under control,” Bailey said.

“They are managing it by effectively preferring onshore to offshore creditors, we do have to note. But obviously it is a concern to us,” he added.

Two banks based in Britain, Standard Chartered and HSBC, have large exposures to Asia. In September, HSBC group chief executive Noel Quinn said he did not expect Evergrande to have any direct impact on the bank.

Evergrande’s situation was “concerning and there is a potential for second and third-order impact, particularly on the capital markets and the bond markets”, Quinn said. “And we’ve got to stay close to that.”

Involved in Underwriting

But a JPMorgan report said HSBC and StanChart have been the foreign banks most involved in underwriting syndicated loans for developers in China and are likely to face “second-order” impacts.

Financial liquidity will remain under pressure for some time, say analysts, with the potential to trigger further defaults.

“Lack of investor confidence has shut down capital markets funding channels for most Chinese developers,” Adrian Cheng, co-head of China property at Fitch Ratings, said.

“A few developers have managed to access the onshore capital market, but funding costs are now higher.”

The Hang Seng Mainland Properties Index rose 5%, up for a third straight day, led by property firms facing liquidity pressure. Sunac China and Logan Group rose 11%, while Shimao Group and Kaisa Group surged 10.7% and 10% respectively.


  • George Russell, with Reuters



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George Russell

George Russell is a freelance writer and editor based in Hong Kong who has lived in Asia since 1996. His work has been published in the Financial Times, The Wall Street Journal, Bloomberg, New York Post, Variety, Forbes and the South China Morning Post.


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