A Hong Kong court has ordered the winding up of the heavily indebted Chinese construction company Evergrande. The process is scheduled to start today. After the announcement, Evergrande shares fell by more than 20 percent.
Judge Linda Chan said she found the move appropriate given the company’s “apparent lack of progress in presenting a viable restructuring plan” and ordered it.
The court made it very clear at the last hearing in December that it expected a “fully formulated and viable proposal,” she added. Chan is expected to give her detailed reasons for the resolution decision and appoint a liquidator on Monday afternoon.
The former flagship of the Chinese real estate industry owes investors over $300 billion. Debts that Evergrande incurred primarily in China but also abroad.
Liquidation “self-inflicted”
A creditor filed an application for the liquidation of Evergrande in Hong Kong in 2022, and the process has dragged on since then. At the beginning of December, Judge Chan granted the struggling company a delay in submitting a restructuring plan in order to avert the threat of liquidation.
This deadline passed on Monday. “The company has to blame itself for the dissolution,” said creditor lawyer Fergus Saurin after the court’s decision. Evergrande failed to enter into dialogue with creditors. After the announcement of the liquidation of the real estate group, Evergrande shares on the Hong Kong stock exchange fell by more than 20 percent. A little later, the stock exchange announced that it would stop trading in securities from Evergrande and its electric vehicle subsidiary.
Construction sector in crisis
Evergrande is at the center of the Chinese construction sector crisis. In 2020, China’s authorities responded to the industry’s escalating debt with restrictions on obtaining loans. At Evergrande in particular, this led to payment defaults and project cancellations. In 2021, the group filed for insolvency proceedings. He has accumulated the equivalent of more than 300 billion euros in debt.
In March this year, Evergrande offered its creditors to exchange their debts for new securities issued by the company and shares in two subsidiaries. In September, CEO Xu Jiayin was arrested in China and share prices plummeted. Trading in the construction group’s shares was then stopped, but resumed at the beginning of October. Official investigations into another subsidiary caused further uncertainty.
The real estate giant employs around 123,000 people (as of 2020).
Assessment by SRF China correspondent Samuel Emch
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Since the group has repeatedly failed to meet its financial obligations in recent years, some international donors and investors have filed a lawsuit in Hong Kong. Negotiations took place for months about restructuring the group and its debts. Now the judge says: enough is enough. Now company assets are to be liquidated in order to pay off the group’s debts.
What sounds simple and conclusive is likely to be a difficult process. Because the decision goes far beyond the Evergrande group. The case is becoming a test for the Chinese leadership. This has been trying for years to save the real estate industry, which is extremely important for the economy, from collapse. There are numerous other “Evergrandes” in China – i.e. real estate companies that are stumbling and have debts at home and abroad.
Like Evergrande, these companies have their assets, their real estate, primarily in China. The big question now will be to what extent these can be sold, as the court ruling requires, in order to pay off debts to foreign investors.