China’s Evergrande running out of time for restructuring

The clock is ticking for the world’s most indebted developer, whose liquidity woes sparked a broader debt crisis in China’s property industry that’s gone on to engulf more home builders, threaten banks and pose growing challenges for President Xi Jinping.

China Evergrande Group, once the country’s largest real estate firm, previously said it was on track to deliver a preliminary restructuring plan by the end of July. That leaves mere days for the builder with about $300 billion of liabilities, just as a shakeup stirs fresh uncertainties.

The group said Friday that Chief Executive Officer Xia Haijun was forced to resign amid a company probe into how 13.4 billion yuan ($ 2 billion) of deposits were used as security for third parties to obtain bank loans, which some borrowers then failed to pay back. Chief Financial Officer Pan Darong was also made to step down.

Siu Shawn, an executive director, will take over as CEO. Siu said that the firm has reached “basic consensus” on debt restructuring principles with multiple major global creditors, according to a Friday report by 21st Century Business Herald.

The company rocked markets late last year when it defaulted on dollar-bond payments after liquidity scares that began in 2020. Contagion from that shock has dragged Chinese offshore junk notes, most of which come from property firms, deeper into distress. Meanwhile, Evergrande’s creditors have been left with little detailed indication of how much they may recover, in what would be one of the nation’s largest-ever debt restructurings.

As important as any clarity on that would be, though, there’s much more at stake. Money managers and policy makers are bound to see the Evergrande restructuring as an important precedent for dealing with ever-expanding defaults and restructurings in China’s real estate industry, which accounts for about a quarter of the world’s second biggest economy. Key elements to watch out for would be the company’s asset disposal plans.