A Hong Kong court ordered the developer to liquidate, saying the company had no viable restructuring plan.
A liquidation order has been issued to troubled Chinese real estate giant Evergrande Group, in a move that could deal another blow to confidence in the world’s second-largest economy.
A Hong Kong court issued the ruling on Monday after the company failed to convince a judge it had a viable plan to restructure about $300 billion in debt.
“There will be a situation where the court will say enough is enough,” Judge Linda Chan said. “The court considers it appropriate to issue a liquidation order against the company and so orders it.”
The ruling comes after 18 months of legal wrangling since creditor Top Shine filed a motion to liquidate the developer to recoup its losses in 2022.
Evergrande, the world’s most indebted developer, was granted a short reprieve in December, arguing it needed time to come up with a restructuring plan.
Chan said the court “made it very clear in December that it expects to see a fully developed and workable proposal.”
Evergrande executive director Sean Siu said the ruling was regrettable, but the group would “take all measures to protect the stability of our domestic business and operations” and said the group would be independent from its Hong Kong unit. He said he is doing so.
Evergrande’s failure to repay foreign investors in 2021 sent shockwaves through China’s real estate sector, which accounts for an estimated 15-30% of the economy, after the Chinese government began cracking down on excessive borrowing for real estate. Ta.
More than 50 Chinese real estate developers have defaulted or missed payments in the past three years, according to credit rating agency Standard & Poor’s (S&P).
Hong Kong-listed Evergrande shares plunged more than 20% following Monday’s ruling before the city’s stock exchange suspended trading in the shares.
The move is the latest in a series of warning signs for China’s $18 trillion economy, with post-COVID-19 economic recovery facing challenges ranging from a crackdown on private industry to a declining population and an outflow of foreign capital. facing.
China’s official gross domestic product (GDP) grew 5.2% last year, its worst performance in decades, excluding the coronavirus pandemic.
Gary Ng, an economist at Natixis (Hong Kong), told Al Jazeera: “The liquidation of Evergrande will pose further challenges for the company and other developers, but the impact on the already battered real estate sector and the macro economy will be limited. That’s probably the point,” he said.
“Household sentiment is already very cautious towards troubled development company units and is unlikely to worsen further. However, recovery in the domestic market may still be delayed and confidence declines.” could last even longer.”
The fate of Evergrande’s asset sheet is uncertain after Monday’s ruling in Hong Kong.
China has signed an agreement with Hong Kong to allow bankruptcy and restructuring proceedings in Chinese cities such as Shenzhen, Shanghai and Xiamen, but could mainland Chinese courts sanction liquidators who seized assets of domestic developers? It’s unclear.
Hong Kong’s common law system, adopted during the British colonial era, is different from the courts controlled by the Chinese Communist Party.
In 2021, a court in Shenzhen approved the appointment of a liquidator for paper company Samsung Paper, allowing bankruptcy proceedings to proceed in Hong Kong for the first time.
“Most of Evergrande’s assets are in mainland China, so there is uncertainty about how creditors can seize assets and the repayment order of offshore bondholders,” Ng said. Stated.