Hong Kong: The Hong Kong court has officially ordered the liquidation of Evergrande, once China’s largest property developer, marking a symbolic end to a prolonged saga of financial turmoil. The decision comes after the company failed to present a viable restructuring plan, reflecting the severity of the crisis that has sent shockwaves through China’s economy.
The court’s decision was announced by High Court judge Linda Chan on Monday, emphasizing the “obvious lack of progress” on Evergrande’s part in formulating a workable restructuring proposal. Evergrande, with reported liabilities exceeding $300 billion, has become a focal point in China’s enduring property crisis, severely impacting the nation’s economy.
The winding-up petition, filed by a creditor in 2022, initiated the liquidation process, which faced delays as various parties attempted to broker a deal. However, the court deemed Evergrande’s lack of engagement and failure to present a comprehensive plan as grounds for the liquidation order.
Shares in Evergrande plummeted 20.87% to HK$0.16 in Hong Kong upon the news, leading to a suspension of trading. The repercussions extended to Evergrande’s electric vehicle subsidiary, prompting a halt in its trading as well. This latest development follows Evergrande’s earlier default on a debt payment in 2021 and its subsequent declaration of bankruptcy in the United States.
Evergrande’s downfall has been closely monitored, given its historical significance as a pillar of China’s economy. President Xi Jinping, acknowledging the risks posed by mounting debts in the property sector, has gradually tightened credit access for developers since 2020, triggering a wave of defaults.
By the end of June, Evergrande reported an estimated $328 billion in debts, signaling a critical point in China’s financial landscape. The company’s liquidation is expected to have broader implications on the country’s real estate sector, which once accounted for a quarter of its GDP.
The global impact of Evergrande’s liquidation has also been a cause for concern, with fears of potential shockwaves in financial markets. However, Chinese regulators have reassured that risks can be contained, as only a small portion of Evergrande’s debt is owed to foreign creditors.
While the precise effects on China’s financial system remain uncertain, Evergrande’s CEO, Shawn Siu, expressed “utmost regret” at the liquidation order, assuring that it primarily affects the Hong Kong-listed unit. Siu emphasized Evergrande’s commitment to continuing operations and delivering properties to buyers, even in the face of this unprecedented challenge.
The unfolding situation raises questions about the broader implications for China’s property market and its economic health, as the fallout from Evergrande’s crisis reverberates through various sectors, including the shadow banking industry. Analysts are closely watching this as a potential test case for the Chinese legal system, given the unique circumstances surrounding Evergrande’s liquidation in Hong Kong.