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"Facade" of Chinese real estate, "Evergrande" takes a heavy blow from the Hong Kong court

2024-01-29 16:46:56Biznes SHKRUAR NGA REDAKSIA VOX
"Facade" of Chinese real estate, "Evergrande" takes a heavy
Palace of "Evergrande"

A Hong Kong court has ordered the closure of Evergrande Group, the world's most indebted property developer, dealing another blow to investor confidence as China's battered real estate sector continues to weigh on its economy.

The liquidation order, issued by the city's High Court on Monday, comes after the Chinese real estate giant and its overseas creditors failed to agree on how to restructure the company's massive debt during 19 months of talks.

"It seems to me that the interests of creditors will be better protected if the company is wound up by the court so that independent liquidators can take control of the company," Judge Linda Chan said in the ruling published on Monday.

Evergrande defaulted on its debt in 2021, triggering a property crisis in China's economy that continues to feel the effects. The Shenzhen-based developer, with total liabilities of 2.39 trillion yuan ($333 billion) at the end of June last year, filed for bankruptcy in New York in 2023.

Overseas creditors are owed $25 billion, the Hong Kong court filing showed, and one of them - Top Shine Global - filed a winding-up petition against Evergrande in Hong Kong in June 2022 in a bid to recoup some of its losses. .

The court has appointed Alvarez and Marsal as liquidators to manage the company, Evergrande said in a Hong Kong stock exchange filing. It will have powers to seize Evergrande's Hong Kong assets - such as the group's office tower in the Wan Chai commercial district - and sell them to raise funds, but the implications for the wider business company in mainland China are unclear.

Evergrande's chief executive Xiao En told state media on Monday that the liquidation order does not affect subsidy operations that are "independent legal entities", including its main property development business, Hengda Real Estate Group, of which has most of its assets in mainland China.

"Currently, the management and operation systems of Hengda Real Estate Group and other domestic and foreign subsidiaries as independent legal entities remain unchanged," he told 21st Century Business Herald.

That's because the legal systems of Hong Kong and China remain distinct, despite Beijing's growing control over the former British colony in recent years.

"Today's liquidation order will have very limited immediate impact on Evergrande's onshore operations or assets," said Brock Silvers, chief investment officer for Hong Kong-based Kaiyuan Capital.

Hong Kong and the city of Shenzhen - where Evergrande is based - have a mutual bankruptcy recognition agreement, but it is "effectively dysfunctional" and courts in the city have found it "extremely impossible" to recognize a liquidator, Silvers said.

“To do so would threaten the availability of Evergrande's land assets to settle its land obligations. On the ground, Evergrande tomorrow will be a lot like Evergrande yesterday," he said.


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