The Hong Kong Justice ordered this Monday the settlement of the indebted Chinese real estate giant Evergrande by ruling in favor of its creditors after more than a year and a half of postponements while the company tried to agree on a restructuring plan for its offshore debt.
The local newspaper South China Morning Post points out that Evergrande, with liabilities close to 330 billion dollars, can still appeal the court decision.
The same judge who handed down the sentence and who had so far granted seven postponements – the last of them, in December, against all odds – to EvergrandeLinda Chan, will chair a session to appoint an interim receiver for the company.
“The hearing lasted a year and a half and The company has not yet managed to present a concrete restructuring proposal. “I think it’s time for the court to say enough is enough,” Chan said today.
Under Hong Kong liquidation regulations, notes South China Morning Post, the provisional liquidators will now take control of the company’s management and manage its affairs, including negotiations with creditors on debt restructuring and control of assets and their accounting books and records.
Will China recognize the order?
In the minutes after the news broke, Evergrande shares on the Hong Kong Stock Exchange plummeted more than 20 percentwhile those of its subsidiary dedicated to electric vehicles, listed on the same stock market, lost more than 18 percent.
The international press had pointed out that the last rounds of negotiations of Evergrande with its main creditors had ended in a breakdown and that, consequently, they had decided to support the liquidation petition filed in mid-2022 by a local investor for non-payment of about $110 million in share buybacks.
Last year, Evergrande He assured, citing a Deloitte analysis, that the recovery rate for investors in the event of a liquidation would be around 3.4 percent.
In addition, some analysts raised the question of whether a hypothetical liquidation ordered by Hong Kong Justice would be recognized in mainland China, where the group has most of its assets.
“The market will pay attention to what receivers can do (…), especially whether they will be recognized by any of the three courts established in the People’s Republic of China under the 2021 agreement on cooperation in cross-border insolvency cases between China mainland and Hong Kong,” says Lance Jiang, partner at Ashurst LLP, quoted by South China Morning Post.
“Receivers will have very limited enforcement power over onshore assets (located in mainland China) if they do not achieve this recognition,” the expert points out.
A prolonged crisis
Evergrande It went into default more than two years ago after suffering a liquidity crisis due to the restrictions imposed by Beijing on the financing of developers with a high level of leverage, after which it was intervened by the Chinese authorities.
Since then, China’s once-largest property developer has been trying to unload assets by raising as much money as possible while negotiating a plan to restructure your debt.
Evergrande, which accumulates almost 20 billion dollars of offshore debt (‘offshore’) has suspended voting on its restructuring proposals on several occasions: the last was in September, when it recognized that its sales were evolving worse than expected and announced that it could not continue issuing new debt through its main subsidiary in China.
In addition, the group has been plunged into a new crisis after its founder and president, Xu Jiayin, was placed under a type of house arrest for “suspicions of illegal activities.”
It is estimated that Evergrande has yet to finish building and delivering sold homes off plan worth about 604 billion yuan (84,098 million dollars), this being one of the non-financial factors that most worries the Chinese Government due to its possible implications for social stability, since real estate is one of the main investment vehicles for families in the country.
Total, Evergrande still has more than 1,200 promotions in different stages of progress.
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One of the main causes of the recent slowdown of the Chinese economy is precisely the crisis in the real estate sector, whose weight on the national GDP – adding indirect factors – was estimated at around 30 percent, according to some analysts.