Giant Evergrande, symbol of China’s real estate crisis, one step closer to liquidation

A Hong Kong court on Monday ordered the liquidation of Chinese real estate giant Evergrande, but the company said it would continue to operate, in a case that has become a symbol of China’s growing economic problems.

Evergrande, based in Foshan in the south of the country, was China’s largest real estate developer with about 70,000 full-time employees at the end of 2022. But it took on more than $300 billion in debt and became a symbol of the real estate crisis. Which has been troubling the world’s second largest economy for years.

However, it remains to be seen how the decision taken in the Chinese semi-autonomous territory Hong Kong can be implemented in mainland China where the laws are different.

The court ruled, “In view of the apparent lack of progress by the company in presenting a viable restructuring proposal (…) I consider it appropriate for the court to issue an order for the liquidation of the company and I make such an order.” ” Hong Kong Judge Linda Chan.

In his written judgment handed down on Monday afternoon, the judge assured that if the company is liquidated and its management is handed over to independent liquidators, the interests of creditors will be “better protected”.

Two members of the Alvarez & Marsal law firm were named as liquidators: Edward Middleton and Tiffany Wong.

The management of the real estate giant reacted by ensuring the Hong Kong court’s decision There will be no impact on its operations in mainland ChinaHowever, in the opinion of analysts, this has further reduced the confidence of foreign investors in China.

Company CEO Shawn Sui described the court’s decision as “regrettable”. In a statement, he said Evergrande’s Hong Kong subsidiary is independent from the group’s Chinese operations and it will “always make every possible effort to protect the sustainability of its domestic businesses and operations.”

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Creditor Top Shine Global filed a liquidation request for Evergrande last year, but the case dragged on while the two sides tried to negotiate a settlement with no results.

real estate crisis

After the court hearing, a lawyer for Evergrande’s creditors assured reporters that the company was “solely responsible for the liquidation.”

Following the judge’s decision, the company’s shares fell 20.87% on the Hong Kong Stock Exchange and its listing had to be suspended. Trading at the group’s electric vehicle subsidiary was also halted.

Chinese authorities are closely monitoring the bankruptcy of Evergrande, which recorded its first loan default in 2021 and declared bankruptcy in the United States, as the group was a pillar of the country’s economy.

The Chinese construction and real estate sector accounts for about a quarter of national GDP., For decades in China, homeowners paid for new homes before they were built and real estate groups easily financed their new sites on credit.

But in recent years, the sector’s heavy indebtedness has been considered by authorities to be a significant risk to the country’s economy and financial system.

For this reason, starting in 2020, Beijing gradually tightened the conditions under which real estate developers could access loans, drying up sources of financing for groups that were already in debt.

At the end of June, Evergrande estimated to have $328 billion in debt,

Shane Oliver, strategist at financial services firm AMP, described Monday’s court decision as “a new step” in the Asian giant’s real estate crisis.

In his opinion, this is “far from a solution and remains a burden on the Chinese economy.”

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