China Evergrande ordered to liquidate

HONG KONG (AP):

A Hong Kong court ordered China Evergrande, the world’s most heavily indebted real estate developer, to undergo liquidation following a failed effort to restructure $300 billion owed to banks and bondholders that fuelled fears about China’s rising debt burden.

“It would be a situation where the court says enough is enough,” Judge Linda Chan said yesterday. She said it was appropriate for the court to order Evergrande to wind up its business given a “lack of progress on the part of the company putting forward a viable restructuring proposal” as well as Evergrande’s insolvency.

China Evergrande Group is among dozens of Chinese developers that have collapsed since 2020 under official pressure to rein in surging debt the ruling Communist Party views as a threat to China’s slowing economic growth.

But the crackdown on excess borrowing tipped the property industry into crisis, dragging on the economy and rattling financial systems in and outside of China.

Chinese regulators have said the risks of global shockwaves from Evergrande’s failure can be contained. The court documents seen yesterday showed that Evergrande owes about $25.4 billion to foreign creditors. Its total assets of about $240 billion are dwarfed by its total liabilities.

“It is indisputable that the company is grossly insolvent and is unable to pay its debts,” the documents say.

About 90 per cent of Evergrande’s business is in mainland China. Its chairman, Hui Ka Yan, who is also known as Xu Jiayin, was detained by authorities for suspected “illegal crimes” in late September, further complicating the company’s efforts to recover.

It is unclear how the liquidation order will affect China’s financial system or Evergrande’s operations as it struggles to deliver housing that has been paid for but not yet handed over to families that put their life savings into such investments.

Evergrande’s Hong Kong-traded shares plunged nearly 21 per cent early yesterday before they were suspended from trading. But Hong Kong’s benchmark Hang Seng index was up 0.9 per cent, and some property developers saw gains in their share prices.

China’s largest real estate developer, Country Garden, initially gained nearly three per cent but was flat. Sunac China Holdings rose 2.4 per cent.

The Shanghai Composite index dropped 0.9 per cent while Shenzhen’s A-share index fell more than two per cent.

The Hong Kong court gave Evergrande a reprieve in December to allow it time to “refine” a new debt-restructuring plan.

But Chan, the judge, said Evergrande “has not demonstrated that there is any useful purpose for the court to adjourn the petition – there is no restructuring proposal, let alone a viable proposal which has the support of the requisite majorities of the creditors”.

Fergus Saurin, a lawyer representing an ad hoc group of creditors, said yesterday that he was not surprised by the outcome.

“The company has failed to engage with us. There has been a history of last-minute engagement which has gone nowhere,” he said.

Saurin said that his team worked in good faith during the negotiations. Evergrande “only has itself to blame for being wound up”, he said.

Evergrande CEO Shawn Siu told Chinese news outlet 21Jingji that the company feels the “utmost regret” at the liquidation order.

He emphasised that the order affects only the Hong Kong-listed China Evergrande unit and that the group’s domestic and overseas units are independent legal entities.

Siu said that Evergrande will strive to continue smooth operations and deliver properties to buyers.

AP