Fund managers are betting that, despite the possibility of a complicated restructuring, creditors will recover far more than the current loan prices. The real-estate company has $20 billion in international bonds outstanding, making it one of the world’s largest troubled-debt investments, with investors looking for ways to boost returns by lowering interest rates.
According to people familiar with the investment, buyers range from traditional asset managers such as Vontobel Asset Management in Zurich to troubled-investment experts such as SC Lowery in Hong Kong and New York-based Apollo Global Management Inc.
Luc D’Hoge, Head of Emerging-Market Bonds at Vontobel, said: “There is a lot of bad news in the price right now – we see an opportunity. The firm has also raised debt to other Chinese property developers to increase diversification and reduce risk. Bought it, he said.
According to MarketAccess, one of Evergrande’s most frequently traded bonds rebounded from a low of 18.50 cents on the dollar last week to nearly 20. The bond traded around 30 in September and around 70 in mid-June.
Investors said they bought the bonds because they believed prices had fallen significantly below those of creditors, or that market sentiment would change after the recent price drop.
Some even bought in anticipation of Evergrande’s default on two dollar-denominated bonds in early December. Bondholders can now demand full repayment and sue to liquidate some of Evergrande’s assets if it does not engage in restructuring negotiations.
Bargainers are betting that Evergrande’s restructuring will comply with market norms and that the Chinese government will not pursue foreign-bondholder claims behind domestic entities and investors. Fund managers said the restructuring could still take more than a year, given Evergrande’s complex balance sheet and its political and economic importance.
A total of $200 million of Evergrande bonds were traded over the past four weeks, a fraction of the company’s outstanding offshore debt, according to MarketAccess.
A committee of large bondholders convened months earlier to strike a deal with Evergrande and its financial advisor, restructuring specialist Houlihan Loki Inc. They initially failed to engage in genuine talks with the property developer, which the Chinese government is moving to eliminate without shutting down the country’s genuine. Property market.
Bond prices fell this autumn, as investors feared the cold shoulder was indicating that foreign creditors would be the last to get their money back.
The creditors are led by a steering committee consisting mostly of alternative-asset managers, including Ashmore Group plc, Contrarian Capital Management LLC, Redwood Capital Management LLC, Saba Capital Management LP and Verde Partners Inc. Familiar people said. He said money-management company BlackRock Inc. is in touch with the group but is not a member.
He said Houlihan and the committee’s advisors, Moelis & Company and Kirkland & Ellis LLP, began preliminary discussions about two weeks ago, but talks have yet to begin. Evergrande publicly acknowledged on December 3 the need to engage with foreign owners of its offshore debt.
Fund managers said the bond-restructuring talks are expected to be a three-way tug-of-war between foreign bondholders, mostly Chinese shareholders of Evergrande, and the Chinese government. Evergrande is majority owned by founder Hui Ka Yan and his wife Ding Yumei.
Evergrande’s foreign creditors are expected to negotiate an agreed deal. Some are considering swapping their debt claims for ownership of the company’s offshore assets, primarily electric-vehicle company Evergrande New Energy Vehicle Group Ltd and a Hong Kong-based asset-management business, fund managers said. Large bondholders can contribute cash in such a deal to recapitalize the auto maker, he said.
If negotiations fail, Evergrande’s dollar-denominated bonds are governed by New York law and issued by an entity incorporated in the Cayman Islands, giving creditors access to both legal jurisdictions to claim their contractual rights. Meets.
Fund managers said such an aggressive strategy could backfire given Evergrande’s close ties with the Chinese state. Government officials said in early December that they would move to restructure the company. According to an international restructuring lawyer, China and the US have not signed treaties that would make a US judge’s decision binding on a Chinese person or entity.
Bondholders have been on tenterhooks since the summer, when signs emerged that Chinese authorities may allow the country’s biggest developer to rein in the overly heated real estate market.
Evergrande deferred defaults on its foreign obligations for months, while it went under government supervision to ensure that citizens who paid company deposits received assets or a refund. Evergrande also began selling assets at heavily discounted prices as it was facing a growing liquidity crisis, frustrating bondholders, who would be left to lay claim to them when restructuring talks finally began. Will go
Evergrande has sold stake in a handful of companies in which it was a controlling shareholder, including Hong Kong-listed Shengjing Bank Company and Hengten Networks Group Ltd, and has sought to sell a majority stake in its asset-management arm Evergrande Property Services. Group Limited bought a rival developer in October for $2.6 billion, but the deal was canceled after the parties did not agree on the final terms.
Foreign bondholders have claims on assets separate from mainland creditors, who are also seeking repayment. On Thursday, Yi Gang, the governor of the People’s Bank of China, said it would urge Chinese companies to issue bonds abroad “in accordance with law and market principles” to meet their debt obligations.
Some analysts still expect the Chinese government to prioritize homeowners and mainland creditors over foreigners.
“China is going to protect its interests first, and offshore investors have to line up,” said Gila Cohen, chief investment strategy officer at MUFG USIS, the investor-services arm of the Japanese investment bank.
This story has been published without modification in text from a wire agency feed
Never miss a story! Stay connected and informed with Mint.
download
Our App Now!!
,