A view of the residential apartments in Country Garden's Forest City development in Johor Bahru
By Xie Yu and Scott Murdoch
HONG KONG/SYDNEY (Reuters) -Country Garden has hired Kroll to carry out a liquidation analysis ahead of a court hearing in mid-May, according to three sources, as the embattled Chinese developer pushes ahead with its offshore debt restructuring plan.
China’s biggest private developer is facing a liquidation petition for non-payment of a $205 million loan, with a court hearing in the case set for May 17.
Companies that are restructuring their debt normally conduct an independent liquidation analysis to assess potential recovery rates for creditors that they can present in court, legal experts said. Peer China Evergrande had picked Deloitte for a liquidation analysis, before a court ordered its winding up in January.
Kroll, the New York-headquartered financial advisory firm, is expected to conduct an independent business review of Country Garden before projecting a recovery rate for the developer’s creditors under a liquidation scenario, according to the three sources who had direct knowledge of the matter.
In a statement to Reuters, Country Garden said hiring a third-party to carry out a liquidation analysis was not related to an actual liquidation. The analysis is one of the documents a company has to submit to court in a restructuring process and also helps creditors make a “more rational judgment” when they review a restructuring proposal, it added .
Country Garden’s financial adviser KPMG declined to comment. Kroll did not respond to Reuters queries on Wednesday.
The sources declined to be named because the information remained confidential.
Country Garden’s Hong Kong traded shares fell 8.6% to around 47.5 Hong Kong cents after news of the Kroll hiring. The shares were flat ahead of the news but have seen large daily swings over the past month.
China’s property sector has lurched from one crisis to another since 2021 after a regulatory crackdown on high leverage among developers triggered a liquidity crisis.
Kroll is in the early stages, and it might take a few months for the creditors to see the results of the analysis, said the three sources.
DEFAULT
Country Garden’s $11 billion of offshore debt was deemed to be in default after it missed a key payment last October. The developer previously hired KPMG and law firm Sidley Austin as advisers to examine its capital structure and liquidity position and formulate what it called a “holistic” solution for creditors.
The role of Kroll will be separate from that task, according to the sources.
In a similar arrangement, Evergrande picked Deloitte and cited the low recovery rate of 3.4% to fight back a liquidation petition before a court ruled its winding up in January.
Two major groups of Country Garden creditors, one formed with bondholders and another with banks, have been in talks with KPMG for the debt restructuring plan since January, said the three sources.
(Reporting by Xie Yu in Hong Kong, Scott Murdoch in Sydney; Additional reporting by Clare Jim; Editing by Tom Hogue, Miral Fahmy and Muralikumar Anantharaman)
