Clare Jim and Julie Zhu by Xie Ju

HONG KONG (Reuters – China Evergrande Group may repay offshore public bondholders owed approximately $19 Billion with cash instalments or equity in two units listed in Hong Kong, according to two sources. This is as the world’s largest developer looking for a way out of financial troubles.

Evergrande’s entire $22.7 million in offshore debt, including private bonds, is considered to be in default. It made the announcement in March that it would present a preliminary restructuring plan by July.

According to one source, Evergrande will repay offshore creditors principal and interest through the conversion of existing bonds into new bonds. Instalments will be made over seven to ten years.

According to two sources, offshore creditors will also be allowed swap their debt for stakes in Evergrande Property Services Group Ltd (Hong Kong) and China Evergrande New Energy Vehicle Group Ltd.

According to the first source, up to 20% offshore debt could be converted into equity in those units. Sources said that the restructuring proposals were in an initial stage and subject to changes.

They declined to identify themselves as they were not authorized to speak with the media.

Evergrande is China’s former top-selling developer. A risk management committee was set up in December by a majority of Guangdong state government members.

Evergrande as well as the Guangdong province government declined to comment on Reuters’ request. Investment bank Moelis (NYSE:) & Co and law firm Kirkland & Ellis, advisers to a group of Evergrande offshore bondholders, also did not respond.

Evergrande has more than $300 Billion in debts and is the epitome of the country’s property sector crisis. Last year, it was unable to pay one payment due date after another.

The problems of the developer led quickly to defaults in China’s property sector. It is an important pillar in China’s second-largest economic country. These defaults rattle investors and lead to a decline in home sales as well as firms struggling to obtain funding.

Although Evergrande’s disorderly collapse has calmed the market, it has still struggled with suppliers to complete its projects, and investors remain uncertain about their chances of recouping their investment.

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Evergrande started talks earlier this year with off-shore bondholders regarding the restructuring plan. It aims to complete the plan by July and then sign agreements with investors by Dec, according to the first source.

Source said, “(Evergrande Chairman Hui Ka Yan) hopes that bondholders will accept our proposal since there aren’t many offshore assets that can immediately be sold to pay the debts.”

Evergrande’s ability to obtain sufficient cash to pay the repayment plan is unclear. Contract sales fell by 39% in 2021 compared to the year before.

One offshore Evergrande bondholder stated they would be more inclined to select the debt to equity option as it doesn’t seem likely that the developer can make cash repayments in full, even after a long time.

As of Friday morning, most Evergrande dollars bonds were below 10 cents per dollar. According to one bondholder, most creditors (especially hedge funds) would prefer to take a haircut in order for them swap with extended notes.

The bondholder stated that the distressed funds “just want out” and added that the opinions were split within the creditors group, so no consensus was reached.

Evergrande Property Services shares and Evergrande New Energy Vehicle shares have been temporarily suspended along with the parent for approximately two months. Because audit work was not completed, none of the companies have filed financial results for 2021.

Since March, the internal investigation into the property management unit has focused on how banks seize 13.4 Billion Yuan of deposits pledged to third-party guarantees.