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Evergrande CEO in Hong Kong for restructuring, asset sale talks: Sources

HONG KONG (REUTERS, BLOOMBERG) – Evergrande Group’s chief executive is holding talks in Hong Kong with investment banks and creditors over a possible restructuring and asset sales, two people said, as the Chinese developer battles against default on more than US$300 billion (S$404 billion) in debts.

CEO Xia Haijun, a confidant of chairman Hui Ka Yan and who runs Evergrande’s day-to-day operations including financing, has been in Hong Kong, where the property firm has a major presence, for more than two months, sources told Reuters.

A third source said Mr Xia was talking to banks and creditors in Hong Kong, but did not say what was being discussed.

Evergrande, which is reeling under more than US$300 billion in liabilities, has left its offshore investors in the dark about repayment plans after already missing three rounds of interest payments on its dollar bonds.

Mr Xia’s talks with investment banks and creditors in Hong Kong have not previously been reported.

One of the sources said Mr Xia needed to communicate with foreign banks on loan extensions and repayments. The source declined to disclose the identity of the creditors that Mr Xia had spoken to in recent days.

“Xia also needs to sort out how many off-balance sheet debts the group has offshore, because many were underwritten at subsidiary levels and he himself may not be even aware of (that),” he said. “Before that they cannot work on restructuring and talk to bondholders.”

Evergrande has been scrambling to divest some of its assets to raise cash – efforts that have not yet yielded much success – as concerns have grown in recent weeks about a possible collapse and the impact on global markets and China’s economy.

Chinese state-owned Yuexiu Property has pulled out of a proposed US$1.7 billion deal to buy Evergrande’s Hong Kong headquarters building over worries about the developer’s dire financial situation, Reuters reported on Friday.

A Chinese central bank official said on Friday the spillover effect of Evergrande’s debt problems on the banking system was controllable and the risk exposures of individual financial institutions were not big.

Evergrande and Mr Xia did not respond to Reuters requests for comment.

The sources, who have direct knowledge of the development, declined to be named due to the sensitivity of the matter.

Public appearance

Mr Hui has not appeared in public in recent weeks or announced plans to address the group’s woes, leaving investors wondering if they would have to book losses when the 30-day grace periods end this month for unpaid bond coupons.

Last month, the developer issued a statement saying Mr Hui had urged company executives to ensure the quality delivery of properties and redemption of wealth management products.

Mr Xia, who is also vice-president of the board, joined the company in 2007 and is responsible for Evergrande’s capital operation and management, as well as legal affairs and overseas affairs, according to the company’s website.

He has been in Hong Kong since July, according to one of the sources. The second source said Mr Xia had been meeting Chinese investment banks in the city to explore possible asset sales.

Evergrande, once China’s top-selling developer, has said that it is looking to dispose of stakes in assets including its services and electric vehicle units to raise funds.

The developer is finalising details to sell 51 per cent of its Evergrande Property Services unit to Hopson Development for HK$20 billion (S$3.47 billion).

Investment bank Moelis & Co and law firm Kirkland & Ellis, representing bondholders who currently hold US$5 billion worth of Evergrande nominal offshore bonds, demanded last week more information and transparency from Evergrande.

The developer said last month it had appointed Houlihan Lokey and Admiralty Harbour Capital as joint financial advisers to examine its financial options, as it warned of default risks amid plunging property sales.

Meanwhile, Hong Kong’s audit regulator said on Friday it was investigating Evergrande’s 2020 accounts and their audit by PwC because it had concerns about the adequacy of reporting on whether it could continue operating as a going concern.

The Financial Reporting Council (FRC) said it had launched an inquiry into Evergrande’s accounts for the full year of 2020 and the first half of 2021, and an investigation of PwC’s audit of Evergrande’s 2020 accounts.

The FRC said Evergrande as of the end of last year reported cash and cash equivalents of 159 billion yuan (S$33.3 billion), which did not cover its current liabilities of 1.5 trillion yuan, and had further borrowings of 167 billion yuan maturing next year.

However, the accounts made no explicit statement about whether material going concern uncertainties existed before or after the effects of implementing plans Evergrande said it had to mitigate potential impacts on cash flow, it said.

PwC expressed an unmodified audit opinion in its auditor’s report on the 2020 annual accounts, but made no reference to material uncertainties regarding whether Evergrande was a going concern, the FRC said.

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