A Hong Kong court has issued an order for the liquidation of China Evergrande Group, a major property developer in China. This decision is likely to have significant repercussions in China’s financial markets, which have been struggling amidst a deepening crisis. China Evergrande Group is the world’s most indebted developer, with over $300 billion in liabilities. Despite months of delays, the company has failed to present a viable restructuring plan, leading to this decision.
Hong Kong Justice Linda Chan, who made the ruling, stated that it was time to put an end to Evergrande’s lack of progress. The court’s reasons for granting the liquidation will be provided later. It is expected that a provisional liquidator will be appointed to oversee Evergrande until a permanent appointment can be made.
The liquidation of Evergrande, which holds $240 billion in assets, will undoubtedly have a significant impact on China’s capital and property markets, which are already fragile. China’s economy is underperforming, and its property market is at its weakest point in nine years. Additionally, the stock market is near five-year lows. Any further disruption to the markets could undermine efforts to revive growth.
The decision to liquidate Evergrande is seen as a strong message that China is willing to take drastic measures to address the property bubble. While this may benefit the economy in the long term, it is expected to present challenges in the short term.
Before the court hearing, Evergrande’s shares had already dropped by as much as 20%. Trading was halted for Evergrande and its listed subsidiaries following the verdict. Evergrande requested an adjournment, stating that it had made some progress on its restructuring proposal. The latest offer involved swapping debts for shares in the company’s Hong Kong units, but it was not enough to prevent the liquidation ruling.
While the liquidation process may be complex and involve various authorities, it is not expected to have an immediate impact on Evergrande’s ongoing construction projects. It could take months or even years for the offshore liquidator appointed by creditors to gain control of subsidiaries on the mainland, which operates under a different jurisdiction from Hong Kong.
Prior to the Evergrande decision, the Supreme Court of China and the Department of Justice in Hong Kong announced a mutual arrangement for the recognition and enforcement of judgments in civil and commercial cases. This arrangement came into effect immediately in both regions. Evergrande had been working on a $23 billion debt restructuring plan with a group of creditors for nearly two years. However, the plan was disrupted when the company’s founder, Hui Ka Yan, became the subject of an investigation for suspected crimes.
This is not the first time a Hong Kong court has ordered the liquidation of a Chinese developer since the debt crisis began in mid-2021. At least three other developers have faced similar rulings.
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