Embattled property developer China Evergrande Group (3333.HK) will get a signal on Thursday of the level of creditor backing for its offshore debt restructuring proposal, with investors to be given an incentive for early support.
While some major creditors have already agreed to support the restructuring proposal, others are eager to cut ties with the debt-laden company and move on.
Evergrande, the world's most indebted property developer with $300 billion of total liabilities, has been at the centre of a debt crisis that has seen multiple Chinese developers default over the past year and seek to restructure debt.
The company's offshore dollar bonds are trading at 6.8 cents to 7.2 cents on the dollar, according to Duration Finance, versus the recovery rate of 2.1% to 9.3% forecast in liquidation scenario that Evergrande cited in its restructuring proposal.
With little hope of substantial debt recovery or other alternatives in sight, three smaller Evergrande creditors and one private banker representing some told Reuters they were not impressed by the proposed terms, which they said were complex and unattractive.
In Evergrande's near 200-page debt restructuring term sheets announced last month, creditors were offered the option of swapping all of their holdings into new notes with maturities of 10 to 12 years, or converting them into different combinations of new notes with tenors of five to 9 years and equity-linked instruments.
Creditors would receive a 0.25% consent fee based on the outstanding principal of their debts by way of new notes if they agreed to support the restructuring by Thursday at 0900 GMT - a deadline that could be extended by the company.
This will provide an indication of support ahead of an actual voting date to be decided by court later and expected to be in the third quarter. The proposal requires approval from more than 75% in creditor value in each debt class in order to pass.
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A resolution for holders of an 8.2 billion yuan ($1.18 billion) onshore bond to approve the offshore restructure did not pass on Wednesday because fewer than half of the bondholders turned up to vote.
The chance of blocking the offshore debt restructuring deal, however, was low because the company had secured support from major bondholders and dissenters accounted for a relatively small proportion of voting power, said Brandon Gale, head of the Asia financial restructuring group at Evergrande's adviser Houlihan Lokey.
An ad-hoc group representing more than 20% and 35% of major holders by value of U.S. dollar-denominated senior notes issued by China Evergrande and unit Scenery Journey Ltd said early this month they would back the restructuring.
Some smaller creditors, speaking on condition of anonymity, told Reuters they found the deal terms unappealing.
One European institutional investor said his firm planned to sell the bonds soon because it had little interest in holding the bonds for another three years before receiving any cash repayment, according to the terms, and he had low expectations that the developer could turn around the business.
A Chinese institutional investor said the restructuring terms were unappealing but his firm planned to accept the offer because its holding was small and it could not see a better option to quickly wrap up dealings and move on.
Houlihan Lokey's Gale said the restructuring terms were more complex than other property sector deals because Evergrande had "a lot of voices and a fragmented holder base".
($1 = 6.9240 Chinese yuan renminbi)
