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Exclusive-China Evergrande offshore bondholder group to join liquidation petition – sources

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© Reuters. An Evergrande sign is seen near residential buildings at an Evergrande residential complex in Beijing, China September 27, 2023. REUTERS/Florence Lo/ File Photo

By Clare Jim

HONG KONG (Reuters) – A key offshore bondholder group of China Evergrande (HK:) plans to join a petition to liquidate the developer at a hearing in a Hong Kong court on Monday, two sources with direct knowledge said.

The bondholder group owns more than $2 billion in offshore notes guaranteed by Evergrande and its support to a winding-up petition against the world’s most indebted developer could increase the chances of an immediate liquidation order from the court, lawyers in the industry said.

A winding-up ruling of the developer with $300 billion of liabilities and $240 billion of assets would likely send shockwaves through already fragile Chinese capital and property markets, and the process could be complicated, with potential political considerations, given the many authorities involved.

The ad hoc bondholder group, which includes hedge funds, told the court about its plan to join the petition this week, said the sources, who declined to be named because the discussions were private.

Moelis (NYSE:) & Co, financial adviser to the ad hoc group, and Evergrande declined to comment. Kirkland & Ellis, legal adviser to the bondholder group, did not immediately respond to request for comment.

Evergrande defaulted on offshore debt in late 2021, becoming a symbol of the debt crisis that has engulfed China’s property sector.

It has been working on a $23 billion debt revamp plan with the ad hoc group for almost two years. Its original plan was scuppered in late September when it said its billionaire founder Hui Ka Yan was under investigation for suspected crimes.

The ad hoc bondholder group had been siding with the developer in opposing the liquidation petition until the last hearing in early December.

Evergrande, seeking to avert an imminent liquidation, came up with a last-minute debt restructuring proposal before the hearing last month.

Advisers to the ad hoc group, which was “firmly opposed” to Evergrande’s revised restructuring terms, said last month that the developer would likely be wound up in January if it did not come up with a plan accepted by all classes of creditors.

Evergrande has not yet submitted any documents to the court ahead of the hearing on Monday, said one of the sources.

But from past experience, the firm could still make a last-minute proposal to the court and creditors right before the hearing, which could potentially change the position of the petitioners.

PETITIONER OWNERSHIP

The petition was filed in June 2022 by Top Shine, an investor in Evergrande unit Fangchebao which said the developer had failed to honour an agreement to repurchase shares it had bought in the subsidiary.

The winding-up proceedings have been adjourned multiple times, and Evergrande has argued in court that Top Shine only represents a small portion of its total offshore debt.

Hong Kong High Court Justice Linda Chan has said previously the December hearing would be the last before a decision was made whether to liquidate Evergrande in the absence of a “concrete” restructuring plan, even though she granted another adjournment as Top Shine did not oppose the move.

Samoa-registered Top Shine has had a change of ownership, with former owner Lin Ho Man telling Tencent News in an interview earlier this month that he had offloaded his debt holdings in Evergrande by selling Top Shine, without giving details on the new buyer.

Lin, 32, told the online news media outlet he was too young at the time of the investment in 2021 and he has “learned a lesson”.

The new owner of Top Shine has explored different options for the liquidation petition against Evergrande, a person with knowledge of the matter told Reuters, including giving Evergrande more time to work on a revised restructuring proposal.

Top Shine declined to comment.

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