A Hong Kong court ordered the liquidation of the Chinese real estate giant Evergrande Group on Monday, after it failed to reach a restructuring deal with creditors. Judge Linda Chan said it was appropriate for the court to order the liquidation given the company’s “lack of progress in submitting a viable restructuring proposal” and its insolvency.
This decision is expected to have a significant impact on China’s financial system, as authorities try to prevent a sell-off in the stock market and prevent the real estate sector from experiencing a decline due to developers struggling to meet their obligations following a crackdown on excessive borrowing.
Evergrande, which is the world‘s most indebted real estate developer, received a brief reprieve in December after it said it was attempting to “refine” a new debt restructuring plan for over $300 billion in liabilities. However, this attempt ultimately proved unsuccessful.
Speaking on behalf of an ad hoc group of creditors, lawyer Fergus Saurin said he was not surprised by the outcome of the liquidation order, stating that the company had failed to engage with them and that any story of last-minute compromise had gone nowhere. He emphasized that his team had been working in good faith throughout the process and that Evergrande “has only itself to blame for being liquidated.”
The fallout from the housing crisis has also affected China’s shadow banking industry, with institutions like Zhongzhi Enterprise Group, which lent heavily to developers, announcing insolvency.
Shares of Evergrande plummeted almost 21% before they were suspended from trading on Monday, while other property companies saw mixed reactions in the stock market. The benchmark Hang Seng Index rose 1% after the ruling, and shares of other property companies advanced, with Country Garden gaining 2.9% and Sunac China Holdings jumping 4%.
The liquidation order comes as a blow to the real estate sector and the Chinese financial system, and its potential long-term impact on Evergrande’s vast operations in mainland China remains uncertain.