China Evergrande ordered to liquidate, with debt of $300 billion
HONG KONG –
A Hong Kong court has ordered China Evergrande, the world’s largest indebted real estate developer, into liquidation after a failed effort to restructure its US$300 billion debt to banks and bondholders has worsened on fears about China’s rising debt burden.
“This is a situation where the court says enough is enough,” Judge Linda Chan said Monday. He said it was appropriate for the court to order Evergrande to wind up its business because of “the lack of progress on the part of the company that puts a possible trend in the future.” a trend”
China Evergrande Group is one of the biggest in a series of Chinese developers that have collapsed since 2020 under official pressure to curb rising debt that the ruling Communist Party sees as a threat to China’s slow economic growth.
But a crackdown on over-lending has put the property industry in crisis, making it a drag on the economy, as many other developers are facing trouble, their difficulties spilling over in financial systems inside and outside China.
Global financial markets were jittery earlier amid fears that Evergrande’s liquidation could cause shockwaves around the world. But Chinese regulators say risks can be involved. Court documents seen Monday show Evergrande owes about $25.4 billion to foreign creditors.
“It is undisputed that the company is seriously insolvent and unable to pay its debts,” the documents said.
About 90% of Evergrande’s business is in mainland China. Its chairman, Xu Jiayin, was detained by authorities for suspected “illegal crimes” in late September.
It is not clear what impact the liquidation order will have on China’s financial system or Evergrande’s operations as it struggles to deliver homes that have been paid for but not yet handed over to families who have invested their life savings in as investments.
Shares traded in Evergrande in Hong Kong fell nearly 21% early Monday before they were suspended from trading. But Hong Kong’s benchmark Hang Seng index rose 0.9% and some property developers saw gains in their share prices.
China’s largest real estate developer, Country Garden, initially gained nearly 3% but was flat. Sunac China Holdings rose 2.4%.
The Shanghai Composite index fell 0.9% while Shenzhen’s A-share index fell more than 2%.
Evergrande got a reprieve from a Hong Kong court in December after it said it was trying to “refine” a new debt restructuring plan of more than $300 billion in loans. The decision can be appealed.
Fergus Saurin, a lawyer representing an ad hoc group of creditors, said Monday he was not surprised by the outcome.
“The company failed to engage with us. There is a history of last-minute engagements that go nowhere,” he said.
Saurin said his team worked in good faith during the negotiations. Evergrande “only has himself to blame for the injury,” he said.
Evergrande “has not shown that there is any useful purpose for the court to delay the petition – there is no restructuring proposal, especially a viable proposal with the support of the required majority of creditors,” Chan, the judge, said. in comments published online Monday.
He criticized the company for putting only “general ideas” about what could or could not be put forward in the form of a restructuring proposal. Creditors’ interests will be better protected if Evergrande loses in court, he said.
Evergrande CEO Shawn Siu told Chinese news outlet 21Jingji that the company felt “deep regret” over the liquidation order. He emphasized that the order only affects the Hong Kong-listed China Evergrande unit.
The domestic and overseas units of the group are independent legal entities, he said. Siu said that Evergrande will strive to maintain smooth operations and deliver properties to buyers.
“If affected, we will still make every effort to ensure the smooth progress of risk resolution and asset disposal, and we will still make every effort to promote all work fairly and in accordance with the law, ” he said.
The 21Jingji article appeared to be taken down for a while on Monday afternoon but was republished shortly after.
Evergrande first defaulted on its financial obligations in 2021, more than a year after Beijing clamped down on lending to property developers in an effort to cool a property bubble.
As a former British colony, Hong Kong operates under a legal system separate from, though more influenced by, communist-ruled China.
In some cases, mainland courts have recognized bankruptcy decisions in Hong Kong but analysts say Evergrande is a test case.
Real estate is driving China’s economic growth, but developers are borrowing heavily as they turn cities into jungles of apartment and office towers. That has helped push total corporate, government and household debt to the equivalent of more than 300% of annual economic output, unusually high for a middle-income country.
Fallout from the property crisis has also affected China’s shadow banking industry — institutions that provide financial services similar to banks but operate outside banking regulations, such as Zhongzhi Enterprise Group. Zhongzhi, which lends heavily to developers, said it was insolvent.