Hong Kong court orders China Evergrande to pay off US$300 billion in debt

Author: Claire Jim, Xie Yu

HONG KONG (Reuters) – A Hong Kong court ordered the liquidation of real estate giant China Evergrande Group on Monday, a move that could set off ripple effects in China’s shaky financial markets as policymakers scramble to contain a deepening crisis.

Judge Linda Chan decided against Evergrande, the world’s most indebted developer, after noting that it had been unable to provide a concrete restructuring plan after defaulting on bond repayments for more than two years and following multiple court hearings. Total liabilities exceed $300 billion) to be liquidated.

“It’s time for the court to say enough is enough,” said Chen, who will provide her detailed reasoning later on Monday.

Evergrande Group CEO Xiao Shaowen told Chinese media that the company would ensure that residential construction projects could still be delivered despite the liquidation order. He added that the order would not affect the operations of Evergrande’s onshore and overseas units.

The decision sets the stage for what is expected to be a lengthy and complex process, with possible political considerations, given the numerous agencies involved. Offshore investors will be watching how Chinese authorities treat foreign creditors when a company goes bankrupt.

Gary Ng, senior economist at Natixis, said: “This is not the end, but the beginning of a long liquidation process that will make Evergrande’s day-to-day operations more difficult. Since most of Evergrande’s assets are located in mainland China, there is uncertainty. “Shareholders may be worse off with how creditors seize assets and the repayment levels of offshore bondholders. “

Before the trial, Evergrande’s share price fell as much as 20%; after the verdict, China Evergrande and its listed subsidiaries China Evergrande New Energy Automobile Group and Evergrande Property were suspended from trading.

Complex process

Evergrande Group, which has $240 billion in assets, defaulted on its debt in 2021, throwing the troubled real estate industry into chaos, and the liquidation ruling could further shake up China’s already fragile capital and real estate markets.

Any new wavering in investor confidence could further undermine policymakers’ efforts to revive growth as Beijing grapples with an underperforming economy, the worst real estate market in nine years and a stock market that has plunged to nearly five-year lows.

Evergrande applied for another extension on Monday, and its lawyers said it had made “some progress” on its restructuring plan. In its latest offer, the developer proposed that creditors exchange its debt for all of the company’s shares in its two Hong Kong subsidiaries. The company will hold about 30% of the subsidiary until the final hearing in December.

Evergrande’s lawyers argued that liquidation could harm the operations of the company and its property management and electric vehicle units, thereby harming the group’s ability to repay all creditors.

For nearly two years, Evergrande has been working on a $23 billion debt restructuring plan with a group of creditors known as a temporary bondholder group.

Fergus Saurin, a partner at law firm Kirkland & Ellis who has advised offshore bondholders, said: “We are not surprised by the results. The result of a failure to engage with the task force.” Tiny engagement but no progress. In this case, the company’s failure can only be blamed on the company itself. “

Evergrande cited Deloitte analysis at a Hong Kong court hearing in July, predicting a recovery rate of 3.4% if the developer was liquidated. Evergrande Group said in September that its flagship business and its chairman, Xu Jiayin, were under investigation by authorities for unspecified crimes. , creditors currently expect the recovery rate to be less than 3%.

The ruling is expected to have little short-term impact on the company’s business, which includes residential construction projects, as it could take months or years for offshore liquidators appointed by creditors to take control of mainland China, a different jurisdiction than Hong Kong. subsidiaries. hole.

Top Shine, an investor in Evergrande’s RVB, first submitted a liquidation application in June 2022, saying the developer failed to fulfill an agreement to repurchase the shares it purchased in the subsidiary.

Before Monday, at least three Chinese developers had been ordered into liquidation by a Hong Kong court since the debt crisis erupted in mid-2021.

(Reporting by Clare Jim and Yu Xie; Additional reporting by Kane Wu and Selena Li; Writing by Scott Murdoch; Editing by Lincoln Feast)

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