China Evergrande’s restructuring ‘quasi unavoidable’ amid distress as ‘free pass’ on debt binge ends

SC Lowy has actively traded Evergrande bonds including with new investors as prices dropped to distressed levels, co-founder says

Evergrande’s free pass appears to have ended as regulators slapped ‘three red lines’ on borrowing limits to contain risk: Seafarer Capital

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Hui Ka-yan (centre, standing) in an undated signing ceremony with senior executives of China Evergrande, pledging to deliver the projects to customers. Photo: Weibo

Published: 9:45am, 13 Sep 2021Updated: 11:55am, 15 Sep 2021

Investors focusing on Asian high yield and distressed bonds are circling China Evergrande Group as the developer seeks fresh capital to pull through its biggest survival test after accumulating more than US$300 billion of liabilities.

The firm, struggling to contain a market sell-off and regulatory warning, may have to restructure its debt to prevent a fire-sale of key assets, some analysts said. Distressed debt investors are weighing the odds of the Shenzhen-based developer beating the drop as multiple credit rating downgrades point to a higher probability of default.

The developer boosted its chances of survival after regulators in Beijing handed it some breathing space. The Financial Stability and Development Committee approved the company’s proposal to negotiate repayment deadlines with lenders and other creditors, Bloomberg reported last week.

“We have traded the bonds very actively in the last few sessions, including with new investors,” said Michel Lowy, chief executive of SC Lowy Financial in Hong Kong, which focuses on junk bonds and distressed credit. “We believe Evergrande will survive, but that some form of debt restructuring is quasi unavoidable.”

Lowy, a former Cargill and Deutsche Bank trader, co-founded the privately-owned investment bank and asset management firm in 2009 after the Lehman Brothers crisis. The firm traded US$10.5 billion of high yield bonds globally in the first half this year and US$22.5 billion in 2020.