A Hong Kong judge grants Evergrande one last chance to avoid liquidation
A Hong Kong High Court judge has granted China’s debt-ridden property giant, Evergrande, a final opportunity to propose a new deal to address its massive debts, warning that failure to do so may lead to liquidation. The winding-up hearing initially scheduled for Monday has been adjourned to December 4th. This delay marks the last hearing before a decisive outcome is determined.
Evergrande, with over $325 billion in total liabilities, is recognised as the world’s most indebted property developer. The company defaulted on its debts two years ago and has since been working on devising a new repayment plan.
The legal proceedings were initiated by Top Shine Global, an investor in Evergrande subsidiary Fangchebao, in June 2022. The case arose from Evergrande’s failure to fulfil an agreement to repurchase shares purchased by the investor.
Evergrande’s efforts to renegotiate its arrangements with creditors encountered a significant setback last month when the company confirmed that its founder, Hui Ka Yan, and one of its primary subsidiaries were under investigation for suspected criminal activities. Furthermore, Chinese regulators prohibited Evergrande from issuing new dollar bonds, a crucial aspect of its debt restructuring strategy. The company also postponed creditor votes on its restructuring plan, which had originally been scheduled for the previous month.
The majority of Evergrande’s debt is owed to Chinese entities, including many ordinary citizens whose homes remain unfinished. When Evergrande initially defaulted on its substantial debts in 2021, it sent shockwaves throughout global financial markets, as the property sector accounts for roughly a quarter of China’s economy.
The company’s continued existence has primarily depended on the fact that the bulk of the money it owes is to domestic lenders in China, who have limited legal avenues to reclaim their funds. In contrast, creditors outside mainland China have the right to pursue lawsuits against the company, as is the case with Top Shine. This could trigger a court order for liquidation.
Eveline Danubrata, Asia Managing Editor at REDD Intelligence, pointed out that it is challenging to envision a scenario in which foreign creditors receive their money ahead of Chinese homeowners. Ultimately, any solution is likely to require significant collaboration with Chinese authorities.
In a scenario of onshore enforcement against Evergrande’s assets, a nod from relevant authorities will be essential.
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