2024-01-29 06:00:54
This comes at a time when the group and its external creditors have failed to reach an agreement on how to restructure the company’s huge debts.
Evergrande, the world’s most indebted real estate developer at more than $300 billion, defaulted on its foreign debt in late 2021 and became a symbol of the debt crisis sweeping China’s real estate sector.
The liquidation process will end with the company managed by provisional liquidators and address issues, including the control of founder and chairman Hui Ka Yan, Judge Linda Chan said in Hong Kong’s High Court on Monday morning.
Trading in Evergrande shares was suspended after the stock fell by 21 percent, leaving its market value at only about $275 million.
The market will closely follow the work of the liquidators after their appointment, especially whether they are able to obtain recognition from any of the three Chinese courts designated under the 2021 agreement between China and Hong Kong.
The liquidators’ enforcement powers of mainland assets in China will be severely limited if they do not obtain this recognition.
Although Hong Kong courts have issued liquidation orders for at least three other Chinese developers since the crisis began in 2021, none compare to Evergrande in terms of complexity, size of assets and number of stakeholders.
Insolvency proceedings in Hong Kong have limited recognition in China, whose courts may also appoint administrators in their jurisdiction. This leaves open the question of what claims from Evergrande’s $17 billion dollar bondholders are included in the proposed restructuring plan.
In conclusion, the Evergrande divestment raises concerns about the difficulty of cross-border implementation and legal recognition. Uncertainty about the rights of international creditors adds another layer of complexity to this already complex process.
Chinese support to contain the worsening crisis
Last week, the Chinese government introduced new rules aimed at expanding access to commercial bank loans for real estate developers with the aim of boosting liquidity in the sector, at a time when Beijing redoubles its efforts to end a long-standing debt crisis in the real estate industry.
The new policies will allow real estate companies to use bank loans mortgaged against commercial properties such as offices and shopping centers to repay their loans and other securities and cover operating expenses. It was announced late Wednesday by the People’s Bank of China, the National Financial Regulatory Administration and the Ministry of Finance.
The People’s Bank of China and the Ministry of Finance announced in a joint statement last week that these new measures will be in effect until the end of 2024.
Beijing moved this week to stabilize troubled financial markets and boost the economy by freeing up more money to lend in various ways. This includes reducing mandatory bank reserves.
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