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aMon, Jan 29, 2024 09:36:00 +0100 b01/29/2024 09:36 c
Updated: 01/29/2024 09:36 Published: 01/29/2024 04:10
Illustration photo – Police officers in front of the headquarters of the development company China Evergrande in the city of Shenzhen. CTK/AP/Ng Han Guan
Hong Kong – The Hong Kong court today sent into liquidation Chinese real estate company China Evergrande, which is the most indebted developer in the world with liabilities of $328 billion (CZK 7.5 trillion). Reuters reported that the decision is expected to have a significant impact on China’s financial markets. Evergrande has become the most prominent symbol of the crisis in China’s real estate market, which has led to a slowdown in economic growth and many bankruptcies.
The judge based her decision on the fact that the company was unable to offer a concrete restructuring plan even more than two years after declaring bankruptcy and several court hearings. Trading in the shares of China Evergrande and its subsidiaries China Evergrande New Energy Vehicle Group and Evergrande Property Services was suspended following the verdict.
The decision paves the way for what is expected to be a lengthy and complicated process with possible political aspects as a number of authorities are involved. Global investors will also focus on how Chinese authorities treat foreign creditors in the event of a default.
“This is not the end but the beginning of a lengthy liquidation process that will make Evergrande’s day-to-day operations even more difficult,” said Natixis chief economist Gary Ng. “Given that most of Evergrande’s assets are located in mainland China, there is uncertainty about how creditors will be able to seize the assets and what the order of repayment of foreign bondholders will be. This could make the situation even worse for shareholders,” he added.
China’s real estate sector is currently facing a severe crisis that threatens the world’s second largest economy. Today’s decision to liquidate Evergrande is likely to further shake China’s already fragile capital and real estate markets. The real estate sector accounts for about a quarter of China’s economy. The China Evergrande crisis began in 2021 when the company defaulted on its obligations. The developer then filed for bankruptcy in New York to protect his assets in the USA.
The government in Beijing is struggling with the weak development of the Chinese economy and the worst situation in the real estate market in nine years. The stock market is near a five-year low and any further shock to investor confidence could further undermine the government’s efforts to ensure stronger economic growth.
The decision is expected to have little impact on the company’s operations, including home construction projects, in the near future. It can take months to years for a creditor-appointed liquidator to take control of subsidiaries in mainland China, a jurisdiction other than Hong Kong. The liquidation will thus be a test of the legal reach of the Hong Kong courts in China, where most of Evergrande’s assets are located. The new management will also have to manage asset sales in an industry that lacks liquidity and trust. Evergrande boss Shawn Siu told Chinese media that the company would ensure that housing projects continued to be implemented despite the liquidation order. According to him, the order will have no impact on Evergrande’s business areas.
The liquidation application was first filed in June 2022 by Top Shine, an investor in Evergrande’s Fangchebao division. Top Shine said the developer had not adhered to the agreement to buy back shares in the subsidiary.
Before Evergrande, a Hong Kong court has sent at least three Chinese developers into liquidation since the debt crisis began in mid-2021.
Evergrande, formerly known as Hengda Group, was founded in 1996 by Huai Ka-yen. This billionaire entrepreneur is also known as Suu Kyi-yin. A small local business grew into a real estate giant, largely with the help of borrowed money. The value of the company’s assets is now around $240 billion.
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