China considers Evergrande split to contain crisis in realty sector

The restructuring plan calls for the developer to sell most of its assets

Chinese authorities are considering a proposal to dismantle China Evergrande Group by selling the bulk of its assets, according to people familiar with the matter.

The restructuring proposal, submitted to Beijing by officials in Evergrande’s home province of Guangdong, calls for the developer to sell most assets except for its separately listed property management and electric vehicle units, the people said, asking not to be identified discussing a private matter. A group led by China Cinda Asset Management, a state-owned bad debt manager and major Evergrande creditor, would take over any unsold property assets, the people said.

If approved by senior officials in Beijing, the plan would mark the biggest step yet by Xi Jinping’s government to prevent a disorderly collapse of the world’s most indebted developer from roiling China’s financial markets and economy before a closely watched Communist Party leadership transition later this year.

Proceeds from the asset sales would be used to repay creditors, although it remains unclear to what degree banks and bondholders would be forced to accept haircuts on their claims. Senior Chinese regulators have repeatedly said in public remarks that debt risks at Evergrande and other distressed property companies should be dealt with in a “market-oriented way.”

Evergrande’s property management and electric vehicle ventures, with a combined market value of almost $9 billion, would initially be kept intact under the proposal but could be sold at a later date, the people said. A custodian account would be set up for these assets to offer some protection to offshore investors, one of the people said.