29.01.2024 12:32
(Akt. 29.01.2024 12:40)
Evergrande is the most indebted property developer ©APA/AFP
The indebted real estate developer China Evergrande is to be wound up. A court in Hong Kong ordered this on Monday, ending a tug-of-war that had lasted more than two years over the company, which is more than $300 billion in debt. “Enough is enough,” said Judge Linda Chan. The real estate company failed to present a concrete restructuring plan.
The restructuring experts from Alvarez & Marsal are now supposed to liquidate the company. But to what extent and when they will even have access to Evergrande’s business in the Chinese heartland is uncertain. “This is not the end, but just the beginning of a lengthy process that will make Evergrande’s day-to-day business even more difficult,” said economist Gary Ng from the French investment bank Natixis.
China Evergrande boss Siu Shawn told Chinese media that the company would complete its housing projects despite the winding-up order. The operational business in China and outside of China is not affected. Judge Chan said appointing a liquidator was in the interests of all creditors. Because he could take responsibility for a new restructuring plan. Evergrande founder Hui Ka Yan has been under investigation since September. “Our goal is to preserve as much business as possible (…) and secure value for creditors,” said Tiffany Wong of Alvarez & Marsal.
A good two years ago, Evergrande defaulted on servicing its foreign debt of $23 billion (currently around €21 billion) and thus became a symbol of the debt crisis in China’s real estate sector. The decision to liquidate the group with assets worth the equivalent of 240 billion is likely to further shake the ailing Chinese capital and real estate markets. “The liquidation of Evergrande is a sign that China is going to extremes to get the real estate bubble under control. This is good for the economy in the long term, but very difficult in the short term,” said Andrew Collier of Orient Capital Research in Hong Kong.
KT Capital’s Fern Wang said investor sentiment is unlikely to be affected in the near term because the decision has been long in the making and therefore expected. The Shanghai stock exchange fell by almost one percent on Monday. The index of major companies in Shanghai and Shenzhen fell by the same amount. Evergrande shares were trading down 20 percent before the court date. Trading was then stopped, as was the case with shares in the subsidiaries New Energy Vehicle Group and Evergrande Property Services.
The Evergrande management had repeatedly delayed the proceedings in Hong Kong before Chan lost his patience. The company never dealt with the creditors’ committee that represented the underwriters of the foreign bonds, said Fergus Saurin of law firm Kirkland & Ellis, who is advising the group. “Time and time again they only got involved at the last minute, but that didn’t lead to anything. It’s the company’s own fault that it’s being wound up now.”
Evergrande’s lawyer also requested another postponement on Monday. “Some progress” has been made with the restructuring plan. A settlement could disrupt the business, which in turn would make it more difficult for Evergrande to repay its liabilities. According to a Deloitte study, creditors can only expect a repayment of their claims of three percent or less in the event of a liquidation.
But it could take months or years for the liquidator to take control of the business in China. Different legal requirements apply there than in Hong Kong, and decisions from the special administrative region are only recognized in three cities, but not at Evergrande’s headquarters in Guangzhou. Investors will likely pay particular attention to how Chinese authorities treat foreign creditors in a resolution.