HK court orders troubled China Evergrande to liquidate

Kanis Leung and Zen Soo |

Property developer China Evergrande Group was unable to reach a restructuring deal with creditors.
Property developer China Evergrande Group was unable to reach a restructuring deal with creditors.

A Hong Kong court has ordered China Evergrande, the world’s most heavily indebted real estate developer, to undergo liquidation following a failed effort to restructure $US300 billion owed to banks and bondholders that fuelled fears about China’s rising debt burden.

Judge Linda Chan said 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 shock waves.

Evergrande Group headquarters in Shenzhen, China
Evergrande first defaulted in 2021 about a year after China’s clamped down on lending to developers. (AP PHOTO)

But Chinese regulators said the risks could be contained. Only a few billion dollars of Evergrande’s debt was owed to foreign creditors.

Evergrande’s Hong Kong-traded shares on Monday plunged nearly 21 per cent early Monday before they were suspended from trading. 

But Hong Kong’s benchmark Hang Seng index was up 0.8 per cent and some property developers saw gains in their share prices. 

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 $US300 billion ($A456 billion) in liabilities. 

It could appeal the ruling. 

Fergus Saurin, a lawyer representing an ad hoc group of creditors, said 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.

Evergrande “only has itself to blame for being wound up”, he said.

Evergrande “has not demonstrated that there is any useful purpose for the court to adjourn the petition – there is no restructuring proposal, let alone a viable proposal which has the support of the requisite majorities of the creditors”, Chan, the judge, said in remarks published online. 

A woman walks next to an Evergrande housing complex in Beijing, China
How the order will affect Evergrande’s operations in the Chinese mainland remain to be seen. (EPA PHOTO)

She lambasted the company for providing only “general ideas” about what it may or may not be able to put forward as a restructuring proposal. 

Creditors’ interests would be better protected if Evergrande was wound up by the court, she said.

Evergrande CEO Shawn Siu said the company felt “utmost regret” at the liquidation order, but emphasised it affected only the Hong Kong-listed China Evergrande unit. 

The group’s domestic and overseas units were independent legal entities, he told Chinese news outlet 21Jingji. 

Siu said Evergrande would strive to continue smooth operations and deliver properties to buyers.

Evergrande first defaulted on its financial obligations in 2021, just more than a year after Beijing clamped down on lending to property developers in an effort to cool a property bubble.

It’s also unclear how the liquidation order will affect Evergrande’s vast operations in the Chinese mainland.

Hong Kong operates under a legal system that is separate from Communist-ruled China’s, and bankruptcy rulings in the former British colony are not always recognised by mainland courts. 

Real estate drove China’s economic boom, but developers borrowed heavily as they turned cities into forests of apartment and office towers. 

That has helped to push total corporate, government and household debt to the equivalent of more than 300 per cent of annual economic output, unusually high for a middle-income country.