Hong Kong court orders liquidation of Evergrande
O Heavily indebted developer unable to offer concrete restructuring plan
A court here yesterday ordered the liquidation of China Evergrande Group, a move likely to send ripples through China’s crumbling financial markets as policymakers scramble to contain a deepening crisis.
Justice Linda Chan decided to liquidate the world’s most indebted developer, with more than US$300 billion (RM1.4 trillion) of total liabilities, after noting Evergrande had been unable to offer a concrete restructuring plan more than two years after defaulting on a bond repayment and after several court hearings.
“It is time for the court to say enough is enough,” Chan said in the morning court session.
She later appointed Alvarez & Marsal as the liquidator.
Chan said the appointment of a liquidator would be in the interests of all creditors because it could take charge of a new restructuring plan for Evergrande at a time when its chairman, Hui Ka Yan, is under investigation for suspected crimes.
Evergrande chief executive Siu Shawn told Chinese media the company will ensure home building projects will still be delivered despite the liquidation order.
The ruling would not affect the operations of Evergrande’s onshore and offshore units, he added.
“Our priority is to see as much of the business as possible retained, restructured, and remain operational. We will pursue a structured approach to preserve and return value to the creditors and other stakeholders,” said Alvarez & Marsal managing director Tiffany Wong after the appointment.
The decision sets the stage for what is expected to be a drawn-out
and complicated process with potential political considerations as investors watch whether the Chinese courts will recognise Hong Kong’s ruling, given the many authorities involved.
Offshore investors will be focused on how Chinese authorities treat foreign creditors when a company fails.
“It is not an end but the beginning of the prolonged process of liquidation, which will make Evergrande’s daily operations even harder,” said Natixis senior economist Gary Ng.
“As most of Evergrande’s assets are in mainland China, there are uncertainties about how the creditors can seize the assets and the repayment rank of offshore bondholders, and situation can be even worse for shareholders.”
Evergrande’s shares were trading down as much as 20% before the hearing.
Trading was halted in China Evergrande and its listed subsidiaries China Evergrande
New Energy Vehicle Group and Evergrande Property Services after the verdict.
Evergrande, which has US$240 billion of assets, sent a struggling property sector into a tailspin when it defaulted on its debt in 2021 and the liquidation ruling will likely further jolt already fragile Chinese capital and property markets.
Beijing is grappling with an underperforming economy, its worst property market in nine years and a stock market wallowing near five-year lows, so any fresh hit to investor confidence could further undermine policymakers’ efforts to rejuvenate growth.
Evergrande applied for another adjournment yesterday as its lawyer said it had made “some progress” on the restructuring proposal.
As part of the latest offer, the developer proposed creditors swap their debts into all the shares the company holds in its two Hong Kong units, compared to stakes of about 30% in the subsidiaries ahead of the last hearing in December.
Evergrande’s lawyer argued liquidation could harm the operations of the company, and its property management and electric vehicle units, which would in turn hurt the group’s ability to repay all creditors.
Evergrande had been working on a US$23 billion debt revamp plan with a group of creditors known as the ad hoc bondholder group for almost two years.
A court document yesterday showed Evergrande’s key offshore assets also include an unsecured interest-free loan of HK$2.1 billion (RM1.3 billion) to a previous unit, China Ruyi , positions in the Greater Bay Area Homeland Investment and its fund with a total book value of HK$1.6 billion, bank balances of HK$3 million and receivables of 131.2 billion yuan (RM87 billion) owed by its subsidiaries.
Evergrande could appeal the liquidation order, but the liquidation process would proceed pending the outcome of the appeal.