Brenda Goh, Clare Jim

SHANGHAI/HONG KONG, (Reuters) –China Evergrande Group announced Friday it would be hiring additional financial and legal advisors in order to meet creditors’ demands. This was after a group of key international creditors threatened legal action if the company did not demonstrate more urgency in resolving a default.

Evergrande has the most indebted company in the world. It is owed more than $300Billion in total liabilities. These include almost $20B in international bonds.

This company’s financial problems have roiled many Chinese property developers in recent years and contributed to a tightening of funding. One positive sign is that Country Garden, a larger competitor, surprised Friday’s market with a $500.2 Million convertible bond issue. This comes after last week’s failed attempt.

Evergrande filed a statement to the stock exchange stating that it proposed to hire China International Capital Corp Ltd. and BOCI Asia Ltd. as financial advisors and Zhong Lun Law Firm LLP, as legal advisers.

The move came one day after an offshore creditor group, represented by law firm Kirkland & Ellis and investment bank Moelis (NYSE:), said it was ready to take “all necessary actions” to defend members’ rights after a lack of engagement by the firm at the heart of China’s property crisis.

According to the creditor group, Evergrande had disregarded offshore creditors as well as its legal rights and that it needed to seriously consider enforcement actions.

Evergrande shares dropped by more than 3 percent in Asia on Friday. Data from Duration Finance indicated that the April 2023 dollar bond was traded at 12.551 Cents per dollar. However, the data showed that the stock bounced after the news, although it is still slightly less than overnight.

Is PROPERTY SENTIMENT TURNING?

The stocks and bonds of Chinese property developer stock and bond gained this week in anticipation of a series of government initiatives that could ease funding constraints and reverse the slump in construction. This is a major economic driver.

Country Garden in China, the top-selling property developer, announced it would issue HK$3.9billion of convertible bonds to refinance its debt. These bonds will be due within one calendar year.

The July 2026 bonds carry a 4.95% rate of interest, and the share price at conversion is HK$8.10. The shares will represent 2.2% of the capital after full conversion.

Country Garden’s shares fell nearly 6% in morning trading to HK$6.55, after the news. But, Jan 2023 International Bond rose to 97.021 from 92.787 overnight.

This new issue is the result of a report by IFR that the developer had failed to attract interest for a possible $300 million convertible bonds. Country Garden, according to IFR, tested the waters of a three year put-two agreement. It would have a yield of 4.75% with a 25% conversion premium.

Beijing cut unexpectedly Monday its borrowing costs for medium-term loans to relieve the economic pressures. The benchmark lending rates of household and corporate loans were cut for the second month. It also decreased its mortgage lending benchmark rate.

Reuters reported Wednesday that policymakers are also drafting national regulations to help developers access funds held in escrow account. These rules will make it more convenient for them to borrow money from sellers, which could improve short-term liquidity as well as buy time to repay their debts.

($1 = 7.7878 Hong Kong dollars)