Hong Kong court orders liquidation of fallen Chinese real estate giant Evergrande

29 Jan 2024

Hong Kong court orders liquidation of fallen Chinese real estate giant Evergrande

A Hong Kong court has ordered the liquidation of Chinese property developer Evergrande, the country’s second largest by sales, raising the prospect of burying a $300 debt pile of the embattled group. The High Court of Hong Kong on Monday ordered the winding up of the real estate group as its overseas creditors did not agree on restructuring its huge debt.

Evergrande, defaulted on its debt in 2021, raising fears of a property bubble in blooming Chinese economy. The company, which had liabilities totaling 2.39 trillion yuan ($333 billion) as of June 2023, filed for bankruptcy in New York in 2023. 

The liquidation order, made by the city’s High Court on Monday, comes after overseas creditors of the embattled Chinese real estate giant failed to agree on restructuring the company’s massive debt even after 19 months of deliberations.

The liquidation of Evergrande, the world’s most indebted real estate company, deals another blow to China’s real estate sector, which accounts for two-thirds of the country’s household wealth and a third of the country’s gross national product (GDP).

“It seems to me that the interests of the creditors will be better protected if the company is wound up by the court, so that independent liquidators can take control over the company,” Judge Linda Chan said in the ruling.

Evergrande, which is based in the Houhai Financial Center in Nanshan District of Shenzhen, in China’s Guangdong province, owed its overseas creditors $25 billion as per court documents.

In a regulatory filing with the Hong Kong stock exchange, Evergrande said the court has appointed Alvarez and Marsal as liquidator as interim manager of the company and that the liquidator has been authorized to take control of the company’s assets.

Evergrande’s assets include, among others, the group’s office tower in the Wan Chi commercial district of Hong Kong. While the court order would help the liquidator raise funds by selling the company’s assets in Hong Kong, its application on the company’s assets in mainland China is unclear.

Chinese state media also quoted Evergrande CEO Xiao En as saying that the Hong Kong High Court order will have no impact on the company’s subsidies that are “independent legal entities,” including its main property development business, Hengda Real Estate Group, in mainland China.

Hong Kong has a mutual insolvency recognition agreement with Shenzhen, which, however, is inoperative. However, Evergrande’s winding-up order will give a major blow to investor confidence, extending the $6 trllion rout brought about by the real estate bubble beginning February 2021.

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