Evergrande, in $300B debt, heads towards liquidation amidst crisis.

China Evergrande Group, burdened with over $300 billion in debt, is heading towards liquidation after receiving a liquidation order from a Hong Kong court. This marks a significant development in the ongoing property debt crisis in China. The liquidation process is expected to be complex and challenging, as Evergrande is one of the largest casualties of the crisis and has numerous stakeholders involved. Trading in Evergrande shares was suspended following a 21% drop, resulting in a market value of just HK$2.15 billion ($275 million).

Under the liquidation order, provisional liquidators will take control of the company and address various issues, including the control exerted by founder and Chairman Hui Ka Yan. However, the management of Evergrande will also need to navigate asset sales in an industry lacking liquidity and confidence. The outcome of the liquidation will test the legal reach of Hong Kong courts in China, where most of Evergrande’s assets are located. Recognition from designated courts in mainland China will be crucial for the liquidators to enforce their powers over onshore assets.

While Hong Kong’s courts have previously issued wind-up orders for other Chinese developers affected by the crisis, the complexity, size of assets, and number of stakeholders involved in Evergrande’s case set it apart. The liquidation process of other companies, such as Jiayuan International Group and Yango Justice International Ltd., has faced challenges and delays. Additionally, the issue of claims by Evergrande’s dollar bondholders, amounting to $17 billion, remains unresolved.

The market has little expectation of repayment, as most of Evergrande’s dollar notes are trading at around 1.5 cents on the dollar. However, Evergrande’s Chief Executive Officer, Shawn Siu, expressed the company’s commitment to ensuring home deliveries and normal operations during the liquidation process.

The petition for liquidation was filed by Top Shine Global Limited in June 2022, and Evergrande’s offshore restructuring plan covers $14.7 billion of debt claims from offshore liabilities. Despite previous assurances from the company, progress in addressing the debt crisis has been limited, leading to the wind-up order. However, there is still a possibility for Evergrande to propose a scheme of arrangement even after the liquidation process.

The liquidation of Evergrande will have implications for China’s property market and investor sentiment. It is unlikely to have a significant macroeconomic impact, but concerns about a potential snowball effect on other pending cases may arise. The winding-up petition case number for Evergrande is HCCW 220/2022.

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