Analysis-As Evergrande faces delisting, China property debt revamp drags on
HONG KONG (Reuters) -China Evergrande Group looks set to be kicked off the Hong Kong exchange next month after failing to revamp its debt and being pushed into liquidation, with the stubbornly weak Chinese property sector clouding the outlook for debt restructuring by its peers.
China's property market, once a key growth driver for the world's second-largest economy, has been in a multi-year tailspin despite repeated government attempts to revive weak consumer demand.
Shop Top Mortgage Rates
A quicker path to financial freedom
Personalized rates in minutes
Your Path to Homeownership
Developers face deteriorating cash flow but their bondholders are resisting taking heftier losses on their investments, delaying negotiations between companies and creditors, said restructuring advisers.
Shares of Evergrande, once China's top developer which was listed in Hong Kong in 2009, have been suspended from trading since Jan. 29, 2024, the day it received a liquidation order from the Hong Kong High Court.
The liquidation order came after it failed to provide a viable restructuring plan for its $23 billion offshore debt.
The company appears set to be delisted from the Hong Kong bourse as a result of its failure to meet the exchange's rules on resumption of trading within 18 months of the commencement of trading suspension.
Its capitalisation, which once topped HK$400 billion ($51 billion), had shrunk to HK$2.2 billion when share trading was halted.
The delisting of what had been one of China's prestige companies would add to gloom hanging over other developers which are scrambling to stay afloat and avoid getting into liquidation litigation by securing creditors' support to revamp debt.
Evergrande is not listed on mainland Chinese stock markets.
With Chinese new home prices falling at the fastest pace in 8 months in June, even developers who have completed first round debt revamps are weighing fresh negotiations and those that have not defaulted are also contemplating such a move to slash debt, financial advisers said.
"There's no light at the end of the tunnel," said Glen Ho, national turnaround & restructuring leader at Deloitte, referring to the property market.
"Companies want to delay their restructuring effective date and use time to exchange for more breathing room, but they cannot create new funds out of nothing."
More than $140 billion, or more than 70%, of China property dollar bonds have defaulted since 2021, according to investment platform FSMOne Hong Kong, and the majority of them are still in various stages of being restructured.
FUNDING CHANNELS
Property construction in China is expected to decline another 30% by 2035 due to structural changes in demand, ANZ analysts said in a June report, which could cast a long shadow over debt restructuring efforts in the near to medium term.
Private developer Country Garden, which defaulted on $14 billion offshore debt in 2023, is still trying to get its lenders' approval on its debt restructuring proposal before the next liquidation hearing on August 11.
Other developers including KWG and Agile have yet to announce detailed restructuring proposals after having started the process in 2023 and 2024, respectively, soon after defaulting on their repayment obligations.
Logan and Powerlong, on the other hand, have cut their offers to bondholders more than once, but have yet to secure approval from their creditors, said two people with knowledge of the matter said.
The people declined to be identified as they were not authorised to speak to the media.
Evergrande's liquidators, Country Garden and HKEX declined to comment. KWG, Agile, Logan and Powerlong did not respond to requests for comment.
Advisers expect some developers, especially privately-owned ones, to go through more than one or even two rounds of debt revamp in the absence of an improvement in home sales outside China's top cities and the availability of funding channels.
'CONTINUOUS DELEVERAGING'
China's property sector accounted for about a quarter of the country's economic activity before it collapsed.
But despite repeated attempts by authorities to stabilise the market, property investment in China declined 11.2% in the first half of this year from a year earlier, while property sales by floor area fell 3.5% and new construction starts dropped 20%.
This year, Shimao and state-backed Sino-Ocean were among the latest to set a date for implementing restructurings after years of wrangling with creditors, according to their regulatory filings.
Sunac became the first developer earlier this year to propose a second restructuring to swap all its restructured notes into mandatory convertible bonds and has gained sufficient creditors approval.
Zhongliang also successfully extended the maturity of all its restructured bonds by two years.
Kaisa's restructuring plan, already approved by creditors and courts, however, has not yet gained the greenlight from China's top economic planner, as the plan involves new debt, two other people said.
Kaisa and NDRC did not respond to request for comment.
"There's no one single playbook; each restructuring plan must be tailored to a company's unique capital and creditor structure," said Una Ge, a Hong Kong-based partner at consultancy firm AlixPartners.
"For privately-owned developers, however, the clear trend is a need for continuous deleveraging, as a single round of restructuring is often insufficient to keep them afloat."
($1 = 7.8499 Hong Kong dollars)
($1 = 7.1793 Chinese yuan renminbi)
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Yahoo
2 hours ago
- Yahoo
Berkshire takes $3.8 billion Kraft Heinz write-down, operating profit falls
By Jonathan Stempel (Reuters) -Warren Buffett's Berkshire Hathaway said on Saturday it took a $3.76 billion write-down on its stake in Kraft Heinz during the second quarter, an acknowledgment the decade-old investment hasn't worked out. Berkshire also reported a 4% decline in quarterly operating profit as insurance underwriting premiums fell. The write-down and lower gains from common stocks caused a 59% drop in overall net income. Buffett's conglomerate signaled it remains cautious about market valuations, amid uncertainty about tariffs and growth in the broader economy. It reported a near-record $344.1 billion cash stake, and sold more stocks than it bought for an 11th straight quarter. As of mid-July, Berkshire hadn't repurchased any of its own stock since May 2024. Buffett, 94, has led Omaha, Nebraska-based Berkshire since 1965, though he plans to step down at year-end. "Investors are getting antsy and want to seek activity, and nothing is happening," said Kyle Sanders, an analyst at Edward Jones. "Buffett definitely views the market as overvalued, and will sit back and wait for something to come to him." Uncertainty about trade policies, including tariffs, has become a headwind as delayed orders and shipments led to declining revenue at most of Berkshire's consumer businesses. Jazwares, which makes the popular Squishmallows plush toys, saw revenue fall 38.5% in the year's first half. Analysts viewed overall results as lackluster. "Berkshire and the economy are at an inflection point," said Cathy Seifert, a CFRA Research analyst. "I don't think the market will embrace the combination of mediocre results, a lack of stock buybacks, and Berkshire's recent share underperformance amid a management transition." Seifert and Sanders rate Berkshire "hold." KRAFT HEINZ Second-quarter operating income fell to $11.16 billion, or about $7,760 per Class A share, from $11.6 billion a year earlier. Results included $877 million of currency losses as the U.S. dollar weakened. Net income, including gains and losses on stocks such as Apple and American Express, fell to $12.37 billion from $30.35 billion. Revenue fell 1% to $92.52 billion. Buffett views unrealized investment gains and losses, including on stocks Berkshire has no plans to sell, as often meaningless to understanding his company. The $3.76 billion after-tax write-down for Berkshire's 27.4% Kraft Heinz stake, equal to $5 billion before taxes, followed the struggling food company's announcement it would consider strategic alternatives, which could include a breakup. Berkshire had carried Kraft Heinz on its books at above-market value but said economic and other uncertainties, and its longer-term plans to remain an investor, made the gap "other-than-temporary." The write-down is Berkshire's second for Kraft Heinz, following a $3 billion write-down in 2019. Buffett acknowledged at the time that Berkshire overpaid in the 2015 merger of Kraft Foods and H.J. Heinz, one of his biggest investment missteps. Kraft Heinz has suffered as more shoppers favor healthier and private-label alternatives. Its approximately 200 brands include Oscar Mayer, Kool-Aid, Velveeta and Jell-O. Berkshire also carries another big investment, its 28.1% stake in Occidental Petroleum at $5.3 billion above fair value, but reported no need for a write-down. LAGGING THE MARKET Shares of Berkshire have fallen more than 12%, and lagged the Standard & Poor's 500 by about 22 percentage points, since Buffett announced on May 3 he would step down as chief executive at year end. Vice Chairman Greg Abel, 63, will succeed him, though Buffett will remain chairman. Analysts said the premium embedded in Berkshire's stock price because of the presence of Buffett, arguably the world's most well-known investor, has eroded, while growth may slow in the insurance sector, a major Berkshire profit center. The lack of new investments has also been a drag. Analysts believe Berkshire's BNSF unit could buy CSX to create another transcontinental railroad, after Union Pacific agreed on July 29 to buy Norfolk Southern. Buffett transformed Berkshire over six decades from a troubled and since-closed textile company into a $1.02 trillion conglomerate. Berkshire owns several insurers and reinsurers, electric utility and renewable energy businesses, several chemical and industrial companies, and familiar consumer brands such as Dairy Queen, Fruit of the Loom and See's Candies. BIG BEAUTIFUL BILL Berkshire said the 12% quarterly decline in insurance underwriting profit stemmed primarily from reinsurance businesses and some smaller insurance businesses. Geico, its best-known insurance business, saw pre-tax underwriting profit rise 2%, as a 5% increase in premiums offset a smaller rise in accident losses. The car insurer has been ceding market share to State Farm and Progressive, while focusing on improving underwriting quality and technology and cutting jobs. Analysts said higher tariffs could be a headwind for Geico if the cost of auto parts rose, potentially increasing losses from accident claims. BNSF is also cutting expenses. Lower fuel costs helped boost quarterly profit 19% gain, though revenue and cargo volumes barely changed. The energy business, Berkshire Hathaway Energy, posted a 7% profit increase. Berkshire said it is evaluating the impact of the One Big Beautiful Bill Act, signed last month by U.S. President Donald Trump, on the "economics and viability" of its renewable energy, storage and technology-neutral projects.
The Hill
4 hours ago
- The Hill
US deadlines in Ukraine are a gift to Putin and Xi
President Trump's announcement this week of a shortened window of '10 to 12 days' for Russian President Vladimir Putin to reach a ceasefire agreement in Ukraine reflects a continued evolution in his rhetoric. His growing frustration with Moscow and his willingness to speak plainly about Russia's escalation send a signal that many in the U.S. and Europe have been waiting to hear. But while the shift in tone signals growing frustration, it has not translated into action. Russia reads the action as a continued pause in pressure, which it has used to intensify its offensive against Ukrainian homes and hospitals. Russian forces are now making their fastest territorial gains in more than a year, and their attacks are becoming more sophisticated. Swarm tactics using Iranian-designed Shahed drones, now mass-produced and adapted inside Russia with Chinese parts, are overwhelming Ukraine's air defenses at an alarming rate. In just one day last month, Russia launched 728 drones, decoys and missiles in a single coordinated wave. Ukrainian interceptors and radar crews are doing heroic work, but they are stretched to the limit. The U.S. has tools at its disposal that remain unused. For months, a bipartisan sanctions bill, co-authored by Sens. Lindsey Graham (R-S.C.) and Richard Blumenthal (D-Conn.) and backed by 85 senators, a veto-proof majority, has been ready to move. The legislation would impose steep secondary tariffs on countries like China, India and Brazil that continue to buy Russian oil and gas, and would significantly raise the cost of doing business with Moscow. But in July, Senate leadership pulled the bill from consideration after President Trump suggested he would act if Russia failed to move toward peace within 50 days. Senate Majority Leader John Thune (R-S.D.) said he would 'hold off' on advancing the bill, signaling that Congress would defer to Trump's timeline. House leaders followed suit. That decision was a mistake. While it is encouraging to see President Trump express increasing resolve, deferring congressional action in the hope that Putin will suddenly negotiate has only given Moscow more time and space to escalate. Every week of delay is a missed opportunity to tighten the financial pressure on Putin's war machine. And the clock is not just ticking in Ukraine. The broader contest involves China, too. Beijing's role in this war has become increasingly visible. Chinese companies are supplying entire weapons systems, not just components. Chinese-made drones and decoys are helping Russia saturate Ukrainian airspace. Chinese officials have even welcomed delegations from occupied Ukrainian territories and continue to sell heavy machinery to companies operating there. European officials report that China's foreign minister recently told the EU that Beijing does not want Russia to lose the war and fears that a Russian defeat would allow the U.S. to focus more squarely on Asia. Ukraine has responded accordingly. In early July, Kyiv arrested two Chinese nationals on espionage charges after they allegedly attempted to steal information about Ukraine's Neptune missile program. Days earlier, President Volodymyr Zelensky imposed sanctions on five Chinese firms accused of supporting the Russian war effort. These are not symbolic gestures, they are signs that Ukraine is increasingly realistic about the stakes and about China's alignment with Moscow. Support for Ukraine is not a distraction from U.S. competition with China. It is a critical part of it. Weakening Putin's military capacity weakens a key pillar of China's global strategy. And allowing Russia to continue its aggression without consequence would embolden Beijing's worst instincts from the Taiwan Strait to the South China Sea. To its credit, the Trump administration has begun voicing stronger concerns about Beijing's role. In the recently concluded round of trade talks, senior U.S. officials reportedly raised objections to China's purchase of sanctioned Russian oil and its sale of more than $15 billion worth of dual-use technology to Moscow. These are important warnings — but without follow-through, they risk being absorbed into the pattern of delay that Moscow and Beijing are already exploiting. The Graham-Blumenthal sanctions bill should move forward. It represents the most serious effort yet to impose real costs not only on Russia, but on the network of countries (especially China) helping it survive sanctions. It complements, rather than competes with, the administration's efforts to pressure Moscow. And it sends a message that the U.S. is serious about backing up its warnings with action. Countdowns can be useful. They create urgency. But urgency without follow-through is no substitute for strategy. What matters now is not how many days remain on the clock, but whether we are using each one to act. Jane Harman is a former nine-term congresswoman from California and former ranking member of the House Intelligence Committee, who most recently served as chair of the Commission on the National Defense Strategy. She is the author of 'Insanity Defense: Why Our Failure to Confront Hard National Security Problems Makes Us Less Safe.'
Business Insider
5 hours ago
- Business Insider
J.P. Morgan Sticks to Its Hold Rating for Budweiser Brewing Co. APAC Ltd. (1876)
In a report released on July 31, Kevin Yin from J.P. Morgan maintained a Hold rating on Budweiser Brewing Co. APAC Ltd., with a price target of HK$9.00. The company's shares closed yesterday at HK$8.09. Elevate Your Investing Strategy: Take advantage of TipRanks Premium at 50% off! Unlock powerful investing tools, advanced data, and expert analyst insights to help you invest with confidence. According to TipRanks, Yin is an analyst with an average return of -3.8% and a 45.45% success rate. Yin covers the Consumer Defensive sector, focusing on stocks such as Budweiser Brewing Co. APAC Ltd., Uni-President China Holdings, and China Feihe Limited. Currently, the analyst consensus on Budweiser Brewing Co. APAC Ltd. is a Strong Buy with an average price target of HK$10.47. Based on Budweiser Brewing Co. APAC Ltd.'s latest earnings release for the quarter ending December 31, the company reported a quarterly revenue of HK$22.11 billion and a net profit of HK$1.44 billion. In comparison, last year the company earned a revenue of HK$24.91 billion and had a net profit of HK$2.16 billion
