China Evergrande instructed to go through liquidation process with debts totaling $300 billion

(Source-The-Economic-Times)

In a significant development on January 29, a Hong Kong court issued an order for the liquidation of China Evergrande Group, a real estate behemoth currently holding the title of the world’s most indebted developer, burdened with a staggering $300 billion in total liabilities. The decision, delivered by Hong Kong Justice Linda Chan, marks a critical juncture in the financial unraveling of Evergrande and is expected to reverberate through China’s fragile financial markets, intensifying the ongoing crisis.

Justice Chan’s ruling was prompted by Evergrande’s failure to present a viable restructuring plan, despite prolonged delays. She emphasized the urgency of the situation, stating, “It is time for the court to say enough is enough.” The detailed reasons behind the liquidation order are set to be disclosed at 2:30 pm (0630 GMT), with the anticipation of the appointment of a provisional liquidator to oversee Evergrande until a permanent appointment is made.

China’s Market Faces Backlash:

With $240 billion in assets, Evergrande had previously triggered a tumultuous downturn in the property sector when it defaulted on its debt in 2021. The recent liquidation ruling is expected to exacerbate the challenges faced by China’s capital and property markets, which are already grappling with an underperforming economy and a lackluster stock market. Beijing’s attempts to stimulate growth may encounter further setbacks if the financial markets experience additional turmoil.

Analysts view Evergrande’s liquidation as a bold move by China to address the property bubble, emphasizing its potential long-term benefits for the economy while acknowledging the immediate challenges. Andrew Collier, Managing Director of Orient Capital Research, commented, “This is good for the economy in the long term but very difficult in the short term.”

Leading up to the court decision, Evergrande’s shares witnessed a substantial decline of up to 20%, prompting a trading halt in the company and its listed subsidiaries, including China Evergrande New Energy Vehicle Group and Evergrande Property Services.

Evergrande’s Plea Not Given Heed:

Despite Evergrande’s plea for another adjournment on the grounds of making progress in its restructuring proposal, the court proceeded with the liquidation order. The complexity of the liquidation process, coupled with potential political considerations involving various authorities, could pose challenges. However, the immediate impact on Evergrande’s operations, including ongoing construction projects, is expected to be minimal, given the timeline required for the offshore liquidator to assume control of subsidiaries across mainland China.

The legal proceedings leading to Evergrande’s liquidation began in June 2022 when Top Shine, an investor in Evergrande unit Fangchebao, filed a petition alleging that the developer failed to honor an agreement to repurchase shares in the subsidiary. Despite multiple adjournments, Justice Chan had previously signaled that the December hearing would be decisive in the absence of a concrete restructuring plan.