Evergrande’s Towering Debt Comes Tumbling Down: What’s Next for China?
Court Orders Liquidation of Debt-Ridden Giant, Raising China Concerns
Evergrande Collapse: Hong Kong, January 29, 2024 – Embattled Chinese property giant Evergrande has been ordered to liquidate by a Hong Kong court, marking a dramatic climax to an 18-month saga that has sent shockwaves through the global financial system. The world’s most indebted developer, with liabilities exceeding $300 billion, failed to convince the court of the viability of its restructuring plan, prompting Justice Linda Chan to declare, “It is time for the court to say enough is enough.”
The liquidation petition, filed in June 2022 by Top Shine, an investor in Evergrande subsidiary Fangchebao, stemmed from the developer’s failure to honor a share repurchase agreement. Evergrande’s $23 billion debt revamp plan, aimed at appeasing creditors, crumbled in September 2022 amidst news of founder Hui Ka Yan’s investigation for “suspected illegal crimes.”
Provisional liquidators will be appointed to take control of Evergrande’s assets, negotiate with creditors, and manage the company. However, the process is expected to be complex and the immediate impact on Evergrande’s operations remains unclear. Offshore liquidators tasked with seizing mainland China assets could face significant hurdles due to differing legal jurisdictions, as analyst Anne Stevenson-Yang of J Capital Research pointed out, stating, “There isn’t really an orderly legal process.”
Redmond Wong, chief China strategist at Saxo Markets, expressed pessimism about Hong Kong shareholders receiving any compensation, while overseas creditors will pin their hopes on the liquidator’s success in gaining mainland court assistance under the 2021 cooperation mechanism.
Trading of Evergrande-related stocks was halted after the verdict, adding to the 20% plunge they had already suffered earlier on Monday. The ruling’s broader impact on China’s struggling economy remains uncertain, with Stevenson-Yang suggesting much of the damage has already been done by previous Evergrande defaults. China’s property market, already grappling with tightened regulations and a historic slump, could face further turmoil, while the nation’s underperforming economy and volatile stock market present additional challenges.
The desperation of the Chinese government to prop up the stock market and its recent move to merge asset management companies into the China Investment Corp raise concerns about long-term economic stability. As analyst Stevenson-Yang observed, “They’re just hoping they can continue to kick the ball down the road.”
While the immediate consequences of Evergrande’s liquidation remain to be seen, the ruling undoubtedly marks a turning point for the troubled developer and raises significant questions about the future of China’s property sector and its broader economic trajectory.
Evergrande Collapse
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