China property developer Evergrande’s debt restructure falls apart

An effort by several hedge funds and other investors to restructure Evergrande Property Group appears to have failed, after the billionaire chairman of the Chinese property developer failed to deliver on a promise to…

China property developer Evergrande’s debt restructure falls apart

An effort by several hedge funds and other investors to restructure Evergrande Property Group appears to have failed, after the billionaire chairman of the Chinese property developer failed to deliver on a promise to repay more than $3bn.

Rudy Tanco, a New York-based investor who has called in a $1.7bn loan from Evergrande, was ousted by the Hong Kong-listed company’s board last week, less than 24 hours after he met Mr Tang to discuss possible changes to its debt structure. Mr Tang has said he is “not bound by any documents related to the debt restructuring”.

The shareholder revolt is the latest flashpoint in a year-long battle between frustrated minority shareholders and Evergrande’s billionaire founder, who is at the centre of a series of government probes. Last year, Evergrande shares lost more than 70 per cent of their value, making it one of China’s worst-performing companies, before recovering in January. The regulator raised questions about its governance.

Evergrande (GBP) is China’s largest commercial property developer. In a statement on Monday, it said a unit had obtained approval to redeem around 200m yuan of 2017 convertible bonds, after the move cut Evergrande’s outstanding debt by around 4bn yuan.

Bondholders had obtained an order last week to stop the company from redeeming them, saying the company did not have the funds to repay the instruments.

The outstanding bonds are worth $3.4bn at their current exchange rate, but some Chinese investors believe the country’s inflation is overestimating the value of the bonds. So the redemption value will rise as inflation rises and could be worth much more.

Shareholders, including Taiwanese investment firm Fung, are planning to appeal the company’s debt restructuring plans.

Evergrande did not respond to questions about the upcoming bond redemption.

The development comes a day after the Hong Kong stock exchange said a 15-year-old audit committee investigation into Evergrande’s accounting practices had found no evidence of any illegal activities in the way the company accounts for its business.

The company has denied allegations of fraud, and said the audit committee had found no violations and that the audit had been conducted by PricewaterhouseCoopers.

In its statement to the market on Monday, the company said it will discuss with the audit committee any irregularities uncovered by its new accountants KPMG.

But that is not enough for Mr Tanco. In a letter to shareholders posted on his website earlier this month, he said he was no longer able to provide professional advice on Evergrande’s finances and liquidity because he was in danger of becoming a target of Mr Tang and the board.

“Even though my firm, Boq’n Development, has not received a directive from local authorities, or failed to comply with any criminal laws in China, our company has been subject to intense, unprecedented online harassment and cyberbullying, and we are now the targets of a politically motivated campaign for political ends,” Mr Tanco wrote.

Meanwhile, people close to the matter said that Evergrande had failed to comply with a request from a shareholder to provide documents supporting its bid to restructure its loans.

By Sunday, Mr Tang had ignored a deadline to provide a letter clarifying Evergrande’s financing plan to Shilidan, a private Chinese investment fund, which has been fighting with the company to restructure its $3.8bn debt, the people said.

Shilidan took control of Mr Tang’s shareholding last year, when it forced him to resign as chairman, handing control of the company to a panel appointed by the company’s trustees.

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