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 fueled fears about China’s rising debt burden.
Judge Linda Chan said Monday 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 one of the biggest of a series 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 a crackdown on excess borrowing has tipped the property industry into crisis, making it a drag on the economy, as scores of other developers ran into trouble, their predicaments rippling through financial systems in and outside China.
Global financial markets were rattled earlier by fears an Evergrande liquidation could cause global shockwaves. But Chinese regulators said the risks could be contained. Only a few billion dollars of Evergrande’s debt was owed to foreign creditors.
It’s unclear how the liquidation order will affect China’s financial system.
Evergrande’s Hong Kong-traded shares plunged nearly 21% early Monday before they were suspended from trading. But Hong Kong’s benchmark Hang Seng index was up 0.9% and some property developers saw gains in their share prices.
China’s largest real estate developer, Country Garden, initially gained nearly 3% but was flat. Sunac China Holdings rose 2.4%.
The Shanghai Composite index dropped 0.9% while Shenzhen’s A-share index fell more than 2%.
Evergrande gained a reprieve from the Hong Kong court in December after it said it was attempting to “refine” a new debt restructuring plan of more than $300 billion in liabilities. It could appeal the ruling.
Fergus Saurin, a lawyer representing an ad hoc group of creditors, said Monday 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. (NPR)