Real Estate

Restructuring Firms Busy in Hong Kong Amid China Property Crisis

 

China’s property crisis has been disastrous for many employees in the building industry, but for specialists in restructuring it’s been the exact opposite.

Companies like Alvarez & Marsal, and Houlihan Lokey, have hiring new staff for months because of a surge in debt restructuring deals. They are one of the few bright spots in the downbeat outlook in the city’s financial sector.

China’s property industry, a key pillar of the world’s second-largest economy, has lurched from one crisis to another since 2021 after a regulatory crackdown on debt-fuelled construction triggered a liquidity squeeze.

 

ALSO SEE: Chinese Firms Withdraw IPOs at Record Rate Amid Regulatory Ire

 

Around 20 Hong Kong-listed Chinese real estate developers have defaulted on dollar bonds, which forces them to enter into restructuring talks with creditors or face liquidation.

Alvarez & Marsal, which saw two of its managing directors appointed last month by a Hong Kong court to liquidate property giant China Evergrande Group, said its China business had about 260 staff as of end-January, up from about 200 a year ago.

It declined to provide a breakdown of its hiring but industry sources with direct knowledge of the matter said the New York-based firm had been building up its restructuring and corporate performance units. The sources were not authorised to speak to media and declined to be identified.

Houlihan has advised Evergrande, as well as Sunac China – the first Chinese developer to complete an offshore debt revamp in the wake of the crisis. It said its team in Hong Kong and China has expanded over the past two-and-a-half years.

“Over this period, the team has grown by more than 50%. We believe there is opportunity for continued growth in China and we are actively recruiting for four additional team members at the moment,” a spokesperson said without giving a specific number.

Demand for debt restructuring professionals has seen a significant uptick since the beginning of 2023 and the trend is expected to continue this year, said Chris Corcoran, financial services senior manager at headhunter Robert Walters.

“It feels like a week doesn’t go by where there isn’t another story about a large company considering some form of restructuring,” he said, adding that this was occurring across various sectors.

Additionally, US law firm Sidley Austin said it now has seven lawyers in Asia in its restructuring practice which was created in the past couple of years. The team works alongside its four capital market partners in Asia, it added.

 

Banking jobs being cut

The hiring by restructuring specialist firms contrasts with the numerous investment banking jobs being cut in Hong Kong and on the Chinese mainland – cuts that are expected to gather pace this year due to deepening economic and market gloom in China.

That gloom has contributed to a sharp plunge in Hong Kong and mainland stock market and deal activity, weighing on the city’s prospects as a regional financial hub.

Winning a restructuring deal usually means handsome fees.

Advisers employed by restructuring companies and bondholder groups are paid monthly retainers, milestone payments when specific stages are achieved, and success payments when the deal is completed.

In the case of property developer China Aoyuan, whose $6 billion offshore debt restructuring deal went into effect last month, fees for its nine legal advisers and counsel including Linklaters came to a total of $16 million, according to filings.

Fees for its financial advisers – KPMG, Deloitte and Admiralty Harbour – were $11.7 million, the documents showed.

Due to the uncertainty and complexity involved in these deals, however, so-called success payments may not eventuate.

After close to two years of negotiations, Evergrande and its bondholder group’s advisers are not able to receive these payments because the company was ordered into liquidation.

 

  • Reuters with additional editing by Jim Pollard

 

ALSO SEE:

 

Will Evergrande Really be Liquidated? Not if China Says No

 

Mortgage Delinquencies in China Soared by 43% in 2023

 

Evergrande Unit Launches $280m Legal Case Against Parent

 

Evergrande Chief’s Two Luxury Mansions ‘Seized by Creditor’

 

Beijing Seen Taking Over China Evergrande’s Debt Revamp

 

Evergrande Chief Suspected Of Transferring Assets Offshore: WSJ

 

China Evergrande Chairman ‘Suspected of Crimes’, Company Says

 

Hui Ka Yan and The Rise and Fall of China Evergrande

 

China’s Property Sector Will Remain Weak For Years: Goldman

 

Jim Pollard

Jim Pollard is an Australian journalist based in Thailand since 1999. He worked for News Ltd papers in Sydney, Perth, London and Melbourne before travelling through SE Asia in the late 90s. He was a senior editor at The Nation for 17+ years.

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