Hong Kong Court Orders Liquidation of Evergrande

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A Hong Kong court has ordered the liquidation of debt-laden Chinese property giant Evergrande, marking a significant development in China’s ongoing real estate crisis. The troubled developer, burdened with over $300 billion in debt, failed to present a viable plan to restructure its financial obligations, leading to the court’s decision.

Judge Linda Chan, expressing frustration, stated that “enough is enough” as Evergrande sought another three months’ leeway to address its financial woes. The court rejected this request, initiating the process to unwind Evergrande and appointing Alvarez & Marsal Asia as liquidators.

The slow-burning crisis at Evergrande has reverberated through the investment community, with potential repercussions compared to the Lehman Brothers’ collapse during the financial crisis. The court’s move is expected to impact China’s financial markets, raising questions about Beijing’s response.

The liquidators, tasked with minimising disruption for stakeholders, plan to assess Evergrande’s financial position and explore restructuring strategies. This may involve seizing and selling assets to repay outstanding debts, potentially affecting property developments across China.

Evergrande’s troubles began with defaults in December 2021, symbolising the volatility of China’s property market. The company’s chairman, Hui Ka Yan, faced investigations for suspected crimes. The court ruling comes at a time when China’s property sector remains fragile, and authorities aim to curb a stock market sell-off.

Evergrande’s shares plummeted by over 20% in Hong Kong after the announcement, prompting a trading suspension. The liquidation order raises jurisdictional challenges, given that most of Evergrande’s assets are in mainland China. While the Supreme Court and Department of Justice signed an arrangement for mutual recognition of judgments, uncertainty remains about its impact on Evergrande’s liquidation.

Despite potential challenges in executing the court’s orders in mainland China, the decision sends a strong message to other developers and creditors. Judge Chan has presided over cases involving defaulted developers, indicating a potential precedent for the industry. The liquidation process is expected to be complex, with implications for both domestic and foreign creditors.