BEIJING – It had been postponed several times last year, now the sentence has arrived: this morning a court in Hong Kong ordered the liquidation of the Chinese giant Evergrande – the most indebted real estate group in the world – which failed to present a plan of convincing debt restructuring for its international creditors.
The company can still appeal. The provisional liquidator is expected to be appointed at a hearing at 2.30pm today. A ruling that will likely shake the already fragile Chinese real estate markets. Trading in Evergrande shares was suspended after the stock plunged 21%. The liquidation order issued by the Hong Kong court does not necessarily mean that Evergrande will collapse immediately: Beijing may decide to ignore the order, to keep the builder afloat, to make sure that citizens who bought the properties even before the start of jobs get what they paid for. In fact, the sentence does not imply the immediate suspension of Evergrande’s construction works.
Crushed by more than $300 billion in liabilities, Evergrande defaulted on its dollar bonds as early as the end of 2021, then triggering a crisis in China’s real estate sector that contributed to slowing growth in the world’s second-largest economy. An offshore debt restructuring plan was announced, but it never convinced.
However, the liquidation process will be complicated and long. The impact on the company’s business, including house-building projects, will be minimal in the short term, as it may take months or years for the offshore liquidator appointed by creditors to take control of subsidiaries in mainland China, which has a different jurisdiction from that of Hong Kong. The move will allow a liquidator to try to take control of Evergrande’s assets outside China, but its practical implications in mainland China, where nearly all of Evergrande’s assets and most of its liabilities are located are more than 300 billion dollars, remain uncertain. It is not yet clear whether mainland Chinese courts will accept Hong Kong’s liquidation order, although there is a mutual recognition agreement on the matter.
The liquidation petition was filed in 2022 by offshore creditor Top Shine Global, which said Evergrande had failed to honor HK$863 million (US$110 million) in claims.
Until last summer, it appeared that Evergrande’s management team and some of its offshore creditors were close to a deal. Negotiations stalled last September, when several high-level executives were arrested and Hui Ka Yan, the company’s president, was also placed “under surveillance” by the police.
The vast majority of Evergrande’s debts are to creditors in mainland China, who have a limited number of legal avenues to claim their money. Foreign creditors, however, are free to approach courts outside mainland China, with some choosing Hong Kong, where Evergrande and other real estate giants are listed.
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2024-01-29 03:59:40
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