Chinese Property Giant Evergrande's $19 Billion Debt Restructuring Advised by Sidley Austin and Kirkland & Ellis

Chinese Property Giant Evergrande's $19 Billion Debt Restructuring Advised by Sidley Austin and Kirkland & Ellis

Sidley Austin, Kirkland & Ellis, and Harneys provided advice to parties on preliminary proposals for the restructuring of China Evergrande Group's offshore debt, which amounts to $19.15 billion. China Evergrande Group is the most heavily indebted real estate developer in the world.

Gordon Davidson and Carrie Li, partners based in Hong Kong for Sidley Austin, represented Evergrande, while Kirkland & Ellis acted as legal advisors for the ad hoc group of bondholders.

The central aspect of the restructuring plan involves the issuance of new bonds to replace the existing bonds, which will provide additional time to three particular groups of agreements.

The initial agreement pertains to the 22 offshore notes associated with the Evergrande Group. Under this agreement, creditors may substitute the old bonds with three new bonds issued by Evergrande in a 1:1 ratio. The new bonds have a maturity period of 10 to 12 years, with a coupon rate ranging between 2 per cent and 4 per cent.

Alternatively, bondholders can exchange their bonds for shares on a 1:1 basis by substituting them with mandatory exchangeable bonds and notes tied to Evergrande Property, Evergrande New Energy Auto, or China Evergrande shares.

The creditors also have the option of a combination of new bonds and debt-to-equity, where the new bonds have a maturity period of five to nine years and a coupon rate ranging between 5 per cent and 7.5 per cent.

The next two groups of arrangements are related to financing by Evergrande's subsidiaries, Scenery Journey and Tianji Holding. Scenery Journey will issue five new bonds, and Tianji Holding will issue four new bonds, with maturities ranging from four to eight years and coupon rates ranging from 5.5 per cent to 8.5 per cent. These arrangements involve a total principal amount of US $6.5 billion and US $800 million, respectively.

If everything goes smoothly, it is anticipated that the restructuring plan will be implemented as early as October 1, 2023, and no later than December 15, 2023.

Xiao En, executive director of China Evergrande, stated that the initial estimate of the company's offshore direct debt is roughly equivalent to US $22.7 billion.

Around 84 per cent of China Evergrande's offshore debt is held by members of the ad-hoc group of bondholders.

Sunac China, another major real estate company in China, which also sought legal counsel from Sidley Austin, recently reached an important agreement with a group of creditors holding US $9 billion of its offshore debt, just days after the proposal announcement by Evergrande.

Amid China's real estate crisis, Sidley Austin has acted as legal counsel for several major Chinese real estate developers, including China Fortune Land Development, Modern Land, and Guangzhou R&F Properties, in their proposals to restructure their debts.