Evergrande faces forced sale of Hong Kong land it pledged for loan
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2 min read . Updated: 31 Jan 2022, 07:47 PM IST Oaktree Capital Management said to appoint receiver after developer defaulted on secured borrowing
Receivers have been appointed over land in Hong Kong that China Evergrande Group used as collateral for a $520 million loan, but the sale of the plot won’t affect the company’s broader restructuring, the troubled developer said.
Evergrande was notified Wednesday about the move, which relates to a plot of undeveloped residential land located in Yuen Long, the property company said in a filing late Sunday in Hong Kong. It didn’t name the lender.
The creditor is Los Angeles-based distressed-debt manager Oaktree Capital Management LP, which used the land as collateral for a secured loan it extended to Evergrande, a person familiar with the matter said. The Financial Times reported last week that Oaktree had moved to seize the plot in Yuen Long, a district close to the border with mainland China’s southern city of Shenzhen.
Because Oaktree lent on a secured basis, it has control over the collateral in the case of a default, and is able to appoint a receiver to sell the asset and recoup what it is owed.
Evergrande said it would give priority to using any net proceeds left after repaying the loan for what it termed “offshore affairs." The company said it was seeking legal advice and was in discussions with the lender.
The real-estate giant said it believed the appointment of receivers and the potential sale wouldn’t have a material impact on the operations or financial position of the group, nor affect the group’s continuing debt restructuring exercise.
Including unpaid interest, the loan is worth roughly $600 million, the person familiar with the matter said, adding that Evergrande could still choose to repay Oaktree directly instead, at any time up until the asset is sold.
Oaktree also appointed an offshore receiver over land near Shanghai last year, after Evergrande defaulted on another project loan worth $400 million including accumulated interest, this person added. The U.S. investor has taken over construction of a residential and commercial project there, working with contractors and local authorities, and has already delivered some homes that had been presold, the person said.
Evergrande has embarked on a complex restructuring with heavy government involvement. Earlier this month, a group of international bondholders threatened to enforce their legal rights against the developer, prompting Evergrande to ask offshore creditors to give it more time and to refrain from taking legal action.
As of June, Evergrande had roughly $300 billion of total liabilities outstanding, including roughly $20 billion in dollar bonds. The developer has been deemed to be in default by all three major credit-rating companies and its bonds have fallen to deeply distressed levels, with dollar bonds due 2025 quoted at about 16 cents on the dollar Monday, according to Tradeweb.
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