As Chinese policymakers struggle to handle a worsening crisis, a court in Hong Kong ordered the liquidation of China Evergrande Group on Monday This step is expected to cause tremors in the country's collapsing financial markets.
After noting that Evergrande had failed to present a viable restructuring plan in spite of months of delays and multiple court appearances, Justice Linda Chan made the decision to liquidate the developer that was the most indebted in the world, with more than $300 billion in total liabilities.
"It is time for the court to say enough is enough," said Chan.
There were no comments available on the court ruling from Evergrande.
Given the numerous authorities involved, the decision sets the stage for what is anticipated to be a drawn-out, complex procedure with possible political concerns. When a firm fails, offshore investors will pay close attention to how Chinese authorities handle debtors from other countries.
"It is not an end but the beginning of the prolonged process of liquidation, which will make Evergrande's daily operations even harder," said Gary Ng, senior economist at Natixis. "As most of Evergrande's assets are in mainland China, there are uncertainties about how the creditors can seize the assets and the repayment rank of offshore bondholders, and situation can be even worse for shareholders."
Prior to the hearing, Evergrande's stock had experienced a 20% decline in value. Following the decision, trading was suspended in China Evergrande and its publicly traded companies, Evergrande Property Services and China Evergrande New Energy Vehicle Group.
With $240 billion in assets, Evergrande's financial default in 2021 put the beleaguered real estate industry into a tailspin. The liquidation verdict is expected to further rattle the already shaky Chinese capital and real estate markets.
Beijing's economy is struggling, the real estate market is at its lowest in nine years, and the stock market is languishing close to five-year lows. As a result, any new shock to the system could jeopardise efforts by officials to spur development.
On Monday, Evergrande requested yet another postponement, citing "some progress" in the restructuring plan according to its attorney. In the most recent proposal, the developer suggested that creditors exchange their loans for all of the company's shares in its two Hong Kong units, as opposed to approximately 30% of the subsidiaries' shares prior to the most recent hearing in December.
The attorney for Evergrande contended that the company's operations, including its electric vehicle and property management divisions, could be negatively impacted by liquidation, so impairing the group's capacity to pay back all of its creditors.
For nearly two years, Evergrande had been collaborating with the ad hoc bondholder group, a collection of creditors, on a $23 billion debt restructuring plan.
"We're not surprised by the outcome and it's a product of the company failing to engage with the ad hoc group," said Fergus Saurin, a Kirkland & Ellis partner who had advised the offshore bondholders.
"There has been a history of last minute engagement which has gone nowhere. And in the circumstances, the company only has itself to blame for being wound up."
According to Saurin, negotiations between Evergrande and the creditors group broke down last week because some creditors would not be satisfied with the developer's most recent offer.
During a July court hearing in Hong Kong, Evergrande referenced a Deloitte research that projected a 3.4% recovery rate in the event that the developer were liquidated. Creditors currently anticipate a recovery rate of less than 3 percent after Evergrande announced in September that the authorities were looking into its chairman Hui Ka Yan and flagship unit for unidentified offences.
Although mainland China is a different jurisdiction from Hong Kong, it may take months or years for the offshore liquidator appointed by the creditors to take control of subsidiaries, it is anticipated that the ruling will have little effect on the company's operations, including home construction projects, in the near future.
Prior to the Evergrande ruling, the Department of Justice in Hong Kong and the Supreme Court of China announced that they had inked an agreement that would make decisions in civil and business matters immediately enforceable in both jurisdictions.
Top Shine, an investor in the Evergrande company Fangchebao, initially filed the liquidation petition in June 2022, claiming the developer had broken a deal to buy back shares it had purchased in the subsidiary.
Since the present financial problem began to emerge in mid-2021, a Hong Kong court had ordered at least three Chinese developers to liquidate before Monday.
(Source:www.abcnews.go.com)
After noting that Evergrande had failed to present a viable restructuring plan in spite of months of delays and multiple court appearances, Justice Linda Chan made the decision to liquidate the developer that was the most indebted in the world, with more than $300 billion in total liabilities.
"It is time for the court to say enough is enough," said Chan.
There were no comments available on the court ruling from Evergrande.
Given the numerous authorities involved, the decision sets the stage for what is anticipated to be a drawn-out, complex procedure with possible political concerns. When a firm fails, offshore investors will pay close attention to how Chinese authorities handle debtors from other countries.
"It is not an end but the beginning of the prolonged process of liquidation, which will make Evergrande's daily operations even harder," said Gary Ng, senior economist at Natixis. "As most of Evergrande's assets are in mainland China, there are uncertainties about how the creditors can seize the assets and the repayment rank of offshore bondholders, and situation can be even worse for shareholders."
Prior to the hearing, Evergrande's stock had experienced a 20% decline in value. Following the decision, trading was suspended in China Evergrande and its publicly traded companies, Evergrande Property Services and China Evergrande New Energy Vehicle Group.
With $240 billion in assets, Evergrande's financial default in 2021 put the beleaguered real estate industry into a tailspin. The liquidation verdict is expected to further rattle the already shaky Chinese capital and real estate markets.
Beijing's economy is struggling, the real estate market is at its lowest in nine years, and the stock market is languishing close to five-year lows. As a result, any new shock to the system could jeopardise efforts by officials to spur development.
On Monday, Evergrande requested yet another postponement, citing "some progress" in the restructuring plan according to its attorney. In the most recent proposal, the developer suggested that creditors exchange their loans for all of the company's shares in its two Hong Kong units, as opposed to approximately 30% of the subsidiaries' shares prior to the most recent hearing in December.
The attorney for Evergrande contended that the company's operations, including its electric vehicle and property management divisions, could be negatively impacted by liquidation, so impairing the group's capacity to pay back all of its creditors.
For nearly two years, Evergrande had been collaborating with the ad hoc bondholder group, a collection of creditors, on a $23 billion debt restructuring plan.
"We're not surprised by the outcome and it's a product of the company failing to engage with the ad hoc group," said Fergus Saurin, a Kirkland & Ellis partner who had advised the offshore bondholders.
"There has been a history of last minute engagement which has gone nowhere. And in the circumstances, the company only has itself to blame for being wound up."
According to Saurin, negotiations between Evergrande and the creditors group broke down last week because some creditors would not be satisfied with the developer's most recent offer.
During a July court hearing in Hong Kong, Evergrande referenced a Deloitte research that projected a 3.4% recovery rate in the event that the developer were liquidated. Creditors currently anticipate a recovery rate of less than 3 percent after Evergrande announced in September that the authorities were looking into its chairman Hui Ka Yan and flagship unit for unidentified offences.
Although mainland China is a different jurisdiction from Hong Kong, it may take months or years for the offshore liquidator appointed by the creditors to take control of subsidiaries, it is anticipated that the ruling will have little effect on the company's operations, including home construction projects, in the near future.
Prior to the Evergrande ruling, the Department of Justice in Hong Kong and the Supreme Court of China announced that they had inked an agreement that would make decisions in civil and business matters immediately enforceable in both jurisdictions.
Top Shine, an investor in the Evergrande company Fangchebao, initially filed the liquidation petition in June 2022, claiming the developer had broken a deal to buy back shares it had purchased in the subsidiary.
Since the present financial problem began to emerge in mid-2021, a Hong Kong court had ordered at least three Chinese developers to liquidate before Monday.
(Source:www.abcnews.go.com)