29th September 2023 – (Hong Kong) The troubled debt restructuring plan for China Evergrande Group hangs in the balance following founder Hui Ka-yan’s detention by Chinese authorities.
Hui and his offshore holding company Xin Xin (BVI) sponsor two separate restructuring support agreements with offshore creditors owed over $20 billion. His detainment for unspecified crimes raises questions over his ability to deliver on obligations to a committee of global hedge funds and distressed debt investors.
As CEO, Hui’s personal signature and approval are typically required for such complex multi-billion dollar deals. His detention leaves both agreements in a state of uncertainty just short of completion. Sources suggest it may further delay or jeopardize distributions to creditors from promised asset sales.
Adding to the difficulties, Hui’s whereabouts and access to counsel are unclear. Baker McKenzie and other advisers involved in negotiations have so far remained silent on impacts to the process. Hui pledged to pay creditors’ legal fees himself in March but it’s unknown if that remains viable given the situation.
Analysts note replacing management is common once patience runs out in Chinese corporate restructurings. However, liquidation would be the worst outcome for all parties as Evergrande owes hundreds of billions. Regulators typically pursue orderly debt resolutions where possible.
Complicating matters is Evergrande’s request to halt stock trading without explanation. Together with subsidiaries, its market value has sunk 80% to just $2.1 billion since August resumption following a 17-month suspension. The developments deepen uncertainty for the embattled developer’s long-haul recovery efforts.