A Hong Kong court has issued a liquidation order against China Evergrande Group, initiating a challenging process to dismantle one of the largest casualties of a prolonged nationwide property debt crisis. This crisis has caused significant market turbulence and has had repercussions throughout the world’s second-largest economy. The company’s astronomical debt of $300 billion has become a symbol of the crisis, which has sparked fears about Chinese lenders’ credit health and broader economic slowdowns.
In a case that has captivated the global market, Evergrande’s Hong Kong-based investors will be forced to take their losses or accept diminished returns. A wind-up will end up in the company being managed by provisional liquidators, who will also address issues like control by founder and Chairman Hui Ka Yan, who has been under investigation in the mainland for alleged crimes. The court’s decision was widely expected, though it will not immediately impact the firm’s construction activities in mainland China, where most of its properties are located.
The company has been trying to devise a plan to restructure its debt since 2021, when it defaulted on a bond, sending shockwaves through the global financial system. But, after more than 18 months without progress, Judge Linda Chan said, “Enough is enough,” and ordered the company to be liquidated.
A liquidation would be an unprecedented event in the history of a country that has rapidly built up its real estate sector as part of a broader campaign to create more affordable housing for the middle class. The move will likely send ripples through the global financial system. However, experts say it wouldn’t provide a blueprint for how liquidation might unfold for other embattled developers in the country.
The main concern is that the process will exacerbate uncertainty in the Chinese economy and deter foreign investors from investing in the nation’s vast construction projects. “This is a terrible message to send to the markets,” said Daniel Margulies, a firm Dechert partner specializings in restructuring in Asia. “It shows that problems of this size, in this context, seem not to be able to be restructured and will instead have to end in some form of liquidation.”
Another issue is whether a winding-up in Hong Kong will be recognized by mainland courts, which might not allow the Hong Kong liquidator to seize assets in China. “This could be a significant obstacle,” Saxo Markets’ Redmond Wong told BI. Despite being an international hub, Hong Kong is not considered a part of the mainland legal system, and many creditors prefer to pursue liquidation proceedings there for various reasons. Those include the standard law legal system and the fact that it has a separate financial industry from the mainland. Nevertheless, some creditors have sought to take their cases back to the mainland. In the Evergrande case, Top Shine Global Limited of Intershore Consult (Samoa), the original petitioner is now expected to back down and let a group of bondholders lead the process instead.