©Reuters. FILE PHOTO: The Evergrande Center of China Evergrande Group is seen in Shanghai, China, September 24, 2021. REUTERS/Aly Song/file Photo
By Clare Jim and Xie Yu
HONG KONG (Reuters) – A Hong Kong court on Monday ordered the liquidation of property giant China Evergrande (HK:) Group, a move that could send ripples through China’s flagging financial markets as politicians race to contain a deepening crisis.
The decision to liquidate the world’s most indebted developer with more than $300 billion in total liabilities was made by Hong Kong judge Linda Chan, who noted that Evergrande has been unable to offer a concrete restructuring plan despite months of delays.
“It’s time for the court to say enough,” he said.
Chan will present his reasons for granting the settlement at 2.30pm (0630 GMT). It is expected that a provisional liquidator will be appointed to oversee Evergrande ahead of a permanent appointment.
Evergrande, which has $240 billion in assets, sent a struggling real estate sector into a tailspin when it defaulted on its debt in 2021 and the liquidation ruling is likely to further shake China’s already fragile capital and real estate markets.
Beijing is grappling with an underperforming economy, its worst property market in nine years and a stock market wallowing near five-year lows, so any fresh blow to markets could further undermine policymakers’ efforts to reinvigorate growth.
“The liquidation of Evergrande is a sign that China is willing to go to extreme lengths to quell the property bubble,” said Andrew Collier, managing director of Orient Capital Research.
“This is good for the economy in the long term, but very difficult in the short term.”
Evergrande shares had fallen as much as 20% before the hearing. Trading was halted in China Evergrande and its listed subsidiaries China Evergrande New Energy Vehicle Group and Evergrande Property Services after the verdict.
COMPLICATED PROCESS
Evergrande asked for another postponement on Monday as its lawyer said it had made “some progress” on the proposed restructuring. In the latest offer, the developer proposed that creditors exchange their debts for all the shares the company holds in its two Hong Kong units, up from holdings of around 30% in the subsidiaries before the last hearing in December.
The liquidation process could be complicated, with potential political considerations, given the numerous authorities involved.
But it is expected to have little impact on the company’s operations, including home construction projects, in the short term, as it could take months or years for the offshore liquidator appointed by creditors to take control of subsidiaries across mainland China, a jurisdiction other than Hong Kong. Kong.
Before the Evergrande decision, China’s Supreme Court and Hong Kong’s Justice Department said they had signed an agreement on mutual recognition and enforcement of judgments in civil and commercial cases with immediate effect in both places.
Evergrande had been working for nearly two years on a $23 billion debt rollover plan with a group of creditors known as the Ad Hoc Bondholders Group. Its original plan was scuttled in late September when Evergrande said its billionaire founder Hui Ka Yan was under investigation for suspected crimes.
The liquidation petition was first filed in June 2022 by Top Shine, an investor in Evergrande’s Fangchebao unit, which said the developer had not honored an agreement to buy back shares it had bought in the subsidiary.
The proceedings had been adjourned several times and Judge Chan had previously said that the December hearing would be the last before a decision was made on whether to liquidate Evergrande in the absence of a “concrete” restructuring plan.
Earlier on Monday, a Hong Kong court ordered the liquidation of at least three Chinese developers since the current debt crisis emerged in mid-2021.