A Hong Kong court on Monday issued a liquidation order for Chinese real estate giant Evergrande as the troubled company teeters on the brink of bankruptcy.
The company’s astronomical debt has become emblematic of a long-running crisis in China’s real estate market — with knock-on effects for the world’s second-largest economy.
Here’s what we know about what Monday’s decision means for Evergrande and China:
What do Evergrande’s creditors want?
Evergrande was once China’s biggest real estate company, a giant in a sector that grew as property became the foundation of the growing wealth of a rising middle class.
But it racked up massive loans at a time when credit was flowing freely — and when Beijing in 2020 turned off the taps in an effort to rein in the sector, it was left with more than $300 billion in debt.
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Unable to repay the interest on its loans, it officially defaulted in December 2021.
In a bid to get its money back, creditor Top Shine Global filed for liquidation in Hong Kong that would force the liquidation of the company’s assets in the city if it did not provide a credible repayment plan.
But having taken months to come up with a plan to repay her debts that was convenient for her creditors, a judge in Hong Kong ruled on Monday that “none of that has happened.”
Despite the decision, analysts are skeptical that any of them will be repaid in full.
Ninety percent of its assets are in the mainland, according to a Hong Kong court ruling on Monday.
“I doubt (Evergrande’s) offshore creditors would receive significant recovery proceeds from the liquidation order,” Zerlina Zeng, credit analyst at Creditsights Singapore LLC, told Bloomberg.
What will happen now with Evergrande?
Judge Linda Chan ruled that boss Hui Ka Yan, known as Xu Jiayin in Mandarin and who is under criminal investigation on the mainland, will no longer control the company and its wider management will be reshuffled in a bid to allay creditors’ fears .
The Hong Kong court ordered the liquidation of China’s Evergrande
It will also now appoint a body charged with liquidating Evergrande’s assets in Hong Kong.
Evergrande insisted that its mainland operations would not be affected by the decision.
The company last year brought in 1.7 trillion yuan ($236.6 billion) in assets, and has since disposed of about 50 billion of that in a bid to get much-needed cash, according to Chinese media.
However, it is not immediately clear how much of the company’s assets will be able to be recovered from its offshore creditors.
Since Monday’s ruling took place in Hong Kong, any seizure of the company’s assets on the mainland may require a separate legal ruling there — and large creditors there to be paid off first.
Chinese “courts can refuse to recognize or assist Hong Kong liquidators in various ways,” Jonathan Leitch, restructuring partner at law firm Hogan Lovells, told AFP.
“As the vast majority of the assets are onshore, whether there is any value in these assets once the priority creditors are satisfied is something that the liquidators will have to investigate.”
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How will the decision affect China’s economy?
Evergrande’s legal troubles in Hong Kong on Monday are unlikely to spark too much concern on the mainland, analysts warn.
“For those anxiously reading the (China) headlines today… and working in panic: Evergrande’s demise in 2021 has not led to a Lehman moment in China,” analyst firm China Beige Book said in a post on X, formerly Twitter. .
“Not even the decay of its already dead crust in 2024 will happen.”
But its woes have become emblematic of a long-running crisis in the country’s property market that has reverberated throughout the world’s second-largest economy.
In response to the crisis in the real estate market, Beijing has issued several rounds of bailout funds for the troubled sector, providing nearly 10 trillion yuan ($1.4 trillion) in real estate loans last year.
And the move will likely remind investors of the poor health of the sector, Ken Cheung Kin Tai, an analyst at Mizuho Bank, said in a note.
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“The authorities will likely manage this liquidation in a way that does not cause significant spillover effects to other parts of the economy,” Shane Oliver, chief economist at Sydney-based financial services firm AMP, told AFP.
Source: AFP