Embattled Chinese development company, Evergrande, has been ordered to liquidate by a Hong Kong court after an 18-month long hearing. Evergrande, which holds the ignominious title of the world’s most indebted property developer with about $300bn in liabilities, failed to convince the court that it had a viable restructuring plan, after having been given seven extensions since court proceedings were first brought in June 2022. However, it can still appeal.
The liquidation petition was lodged by Top Shine in June 2022, an investor in Evergrande unit Fangchebao which said the developer had failed to honour an agreement to repurchase shares it had bought in the subsidiary.
Evergrande had been working on a $23bn debt revamp plan but this fell apart in September when the company announced its founder, billionaire Hui Ka Yan, was under investigation for “suspected illegal crimes”.
Provisional liquidators will be announced. They will be expected to take control of Evergrande assets, negotiate with creditors on debt restructuring, and take over management of the company.But the process is expected to be complicated and have little impact on the company’s operations in the immediate term.
Offshore liquidators, appointed by creditors and tasked with taking control of Evergrande’s subsidiaries in mainland China, could take months or years, and would probably face difficulty in the process.
China is a different jurisdiction to Hong Kong, and in previous cases like developer Kaisa group, and solar company Suntech, the processes had been “murky”, said analyst Anne Stevenson-Yang, founder of J Capital research.
It was unclear how the ruling would impact the industry and China’s struggling economy. Stevenson-Yang said much of the impact of Evergrande’s woes had already been felt after it defaulted in 2021. Since China’s central government tightened regulations in 2020, companies responsible for about 40% of Chinese home sales have defaulted. China is grappling with an underperforming economy, its worst property market in nine years and a stock market wallowing near five-year lows, and its government has been making intense interventions.