A Hong Kong court yesterday ordered the liquidation of property giant China Evergrande Group (恆大集團), but the firm said it would continue to operate in a case that has become a symbol of the nation’s deepening economic woes.
Once China’s biggest real-estate firm, its astronomical debt of more than US$300 billion became emblematic of a years-long crisis in the country’s property market that has reverberated throughout the world’s second-largest economy.
The order kickstarts a long process that should see Evergrande’s offshore assets liquidated and its management replaced, after the company failed to develop a working restructuring plan.
The company’s executive director vowed the Hong Kong court’s decision would not impact its domestic operations, while analysts said the ruling would further erode foreign investor confidence in China.
Given “the obvious lack of the progress on the part of the company in putting forward a viable restructuring proposal and the insolvency of the company... I consider that it is appropriate for the court to make a winding up order against the company and I so order,” High Court judge Linda Chan (陳靜芬) said.
In her written judgement issued yesterday afternoon, Chan wrote creditors’ interests would be “better protected” if the company is wound up and independent liquidators could take over to secure assets and restructure as needed. Edward Middleton and Tiffany Wong (黃詠詩) of law firm Alvarez & Marsal Asia Ltd were appointed by Chan as liquidators.
The winding-up petition was filed in 2022 by creditor Top Shine Global Ltd, which wanted its money back after Evergrande formally defaulted in December 2021. However, analysts are skeptical whether any creditors would be repaid in full.
Chan’s judgement said that 90 percent of Evergrande’s assets are in China.
“I doubt [Evergrande’s] offshore creditors would receive substantial recovery proceeds from the liquidation order,” Creditsights Singapore LLC credit analyst Zerlina Zeng (曾竹君) told Bloomberg.
Evergrande executive director Shawn Siu (肖恩) called the decision “regrettable,” but vowed yesterday that the company’s operations in China would continue.
“The Group will still endeavor to do everything possible to safeguard the stability of its domestic business and operation,” he told a Chinese business outlet, adding that Evergrande’s Hong Kong arm was independent from its domestic subsidiary.
The company would “steadily push forward with the key work of guaranteeing the delivery of buildings, and maintain the quality of property services without being affected,” Siu added.
Shares in Evergrande plunged 20.87 percent to HK$0.16 in Hong Kong following the ruling, before the stock exchange halted trading in the morning. Trading was also halted in Evergrande’s electric vehicle subsidiary.
Last year, Evergrande chairman Xu Jiayin (許家印), known as Hui Ka Yan in Cantonese, was “subject to mandatory measures” from authorities on suspicion of “crimes.”
In yesterday’s ruling, Chan wrote that a winding-up order had the “advantage” of taking control of the company away from Xu, removing a hurdle for restructuring.
By the end of June last year, Evergrande estimated it had debts of US$328 billion.
The impact of Monday’s decision on Evergrande’s construction activities in China is “unknown,” Mizuho Bank Ltd chief Asian foreign exchange strategist Ken Cheung (張建泰) said.
However, the liquidation would likely remind investors of the sector’s ill-health and “may keep foreign investors away,” he said.
While the winding-up was “widely anticipated,” the challenge is on “whether the liquidator will succeed in obtaining recognition... from mainland courts to seize” assets, Saxo Markets chief China strategist Redmond Wong (黃永輝) said.
“Authorities will probably manage this liquidation in a way that doesn’t cause major contagion effects to other parts of the economy,” AMP Financial Services Holdings Ltd chief economist Shane Oliver said.
However, “it tells us that the property crisis is still far from being resolved, and remains an ongoing drag on the Chinese economy.”
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