Embattled Chinese development company, Evergrande, has been ordered to liquidate by a Hong Kong court after an 18-month long hearing.
Evergrande, which holds the ignominious title of the world’s most indebted property developer with about $300bn in liabilities, failed to convince the court that it had a viable restructuring plan, after having been given seven extensions since court proceedings were first brought in June 2022. However it can still appeal.
Justice Linda Chan delivered the ruling on Monday morning, saying “it is time for the court to say enough is enough”.
The liquidation petition was lodged by Top Shine in June 2022, an investor in Evergrande unit Fangchebao which said the developer had failed to honour an agreement to repurchase shares it had bought in the subsidiary.
Evergrande had been working on a $23bn debt revamp plan but this fell apart in September when the company announced its founder, billionaire Hui Ka Yan, was under investigation for “suspected illegal crimes”.
Provisional liquidators will be announced on Monday afternoon. They will be expected to take control of Evergrande assets, negotiate with creditors on debt restructuring, and take over management of the company.
But the process is expected to be complicated and have little impact on the company’s operations in the immediate term. Offshore liquidators, appointed by creditors and tasked with taking control of Evergrande’s subsidiaries in mainland China, could take months or years, and would probably face difficulty in the process.
China is a different jurisdiction to Hong Kong, and in previous cases like developer Kaisa group, and solar company Suntech, the processes had been “murky”, said analyst Anne Stevenson-Yang, founder of J Capital research.
“I think the point is there isn’t really an orderly legal process.”
Redmond Wong, chief China strategist at Saxo Markets, said the likelihood of Evergrande shareholders in Hong Kong getting anything out of the winding up process was “very low”.
“For overseas creditors, focus will be on if the liquidator will succeed in its applications for assistance to mainland courts in Shanghai, Shenzhen and Xiamen under the cooperation mechanism re-established in 2021 and get hold of assets in the mainland.”
Trading was halted in China Evergrande, China Evergrande New Energy Vehicle Group, and Evergrande Property Services, after the verdict. Shares were already trading down as much as 20% before the hearing on Monday.
It was unclear on Monday how the ruling would impact the industry and China’s struggling economy. Stevenson-Yang said much of the impact of Evergrande’s woes had already been felt after it defaulted in 2021. Since China’s central government tightened regulations in 2020, companies responsible for about 40% of Chinese home sales have defaulted. China is grappling with an underperforming economy, its worst property market in nine years and a stock market wallowing near five-year lows, and its government has been making intense interventions.
“This kind of desperation of the Chinese government to support the stock market, and now I hear they’re merging all these asset management companies into the [sovereign wealth fund, China Investment Corp], just really kind of hoping they can continue to kick the ball down the road,” she said.