SYDNEY – China Evergrande’s offshore dollar bond holders stand to receive a potentially tiny payout in a complicated process that could take years to play out after the property giant was placed in liquidation, according to S&P Global Ratings.
A new report published on Jan 31 by the ratings agency said in-court cash recovery rates were around 2.8 per cent, on average, in offshore default cases of Chinese developers.
The agency said the recovery rate for onshore defaults for the same issuer type is 8.3 per cent.
Evergrande, which has more than US$300 billion (S$402 billion) in liabilities, was placed into liquidation by a Hong Kong court on Jan 29.
“We assume offshore bond holders will get a few cents on the dollar once the liquidation plays out,” said S&P Global Ratings’ China corporates specialist Chang Li.
“They will likely yet have to wait years even for this thin payout.”
Evergrande did not immediately respond to a request for comment from Reuters. The future of Evergrande’s liquidation process also hinges on the Hong Kong court decision being recognised in mainland China.
Evergrande stock and corporate bond trading remains suspended in Hong Kong.
S&P Global said Evergrande, as the offshore entity and a shareholder of the broader group, would only be paid after onshore creditors if its onshore entities were liquidated.
In its court arguments, Evergrande cited a Deloitte analysis in July that estimated a recovery rate of 3.4 per cent if the developer were liquidated.
However, after Evergrande said in September its flagship unit and its chairman Hui Ka Yan were being investigated by the authorities for unspecified crimes, creditors now expect a recovery rate of less than 3 per cent.
“The offshore parent, which is being liquidated, can get repaid only by extracting cash flow from the onshore entities, such as though dividends, the repayment of shareholder loans, or by selling equity,” the S&P report said.
“This is a moot point as the company is in financial deficit.”
Alvarez & Marsal has been appointed as Evergrande liquidator’s and said in a statement to Reuters it would start meeting with Evergrande’s staff to begin a process. REUTERS