China’s Evergrande Group, the world’s most heavily indebted property developer, has been ordered to wind up by a court in Hong Kong, Reuters reported on Monday. This further damages investor confidence as China’s struggling real estate sector continues to weigh on the economy. The liquidation order, issued by the city’s High Court, comes after the embattled Chinese real estate giant and its foreign creditors failed to reach an agreement on how to restructure the company’s massive debt during 19 months of negotiations.
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In the ruling published on Monday, Judge Linda Chan stated, “It appears to me that the creditors’ interests will be better safeguarded if the court winds up the company, enabling independent liquidators to assume control over the company.” Evergrande defaulted on its debt in 2021, triggering a property crisis in China’s economy that continues to have repercussions. The Shenzhen-based developer, which had total liabilities of 2.39 trillion yuan ($333 billion) as of June last year, filed for bankruptcy in New York in 2023.
Overseas creditors owed $25 billion
According to the Hong Kong court document, overseas creditors are owed $25 billion, and one of them, Top Shine Global, filed a winding-up petition against Evergrande in Hong Kong in June 2022 in an attempt to recoup some of its losses. Alvarez and Marsal have been appointed as liquidators by the court to oversee the company’s management, as stated in a filing made by Evergrande to the Hong Kong stock exchange. The liquidators will have the authority to seize Evergrande’s assets in Hong Kong, including the group’s office tower in the Wan Chai commercial district, and sell them to raise funds. However, the implications for the company’s extensive operations in mainland China remain uncertain.
Mixed performance in Chinese markets
Following the liquidation order, Chinese markets displayed mixed performance on Monday, with Hong Kong stocks rising while indexes in Shanghai and Shenzhen fell again, following a brief respite last week from an extended downturn. Since reaching their recent peaks in February 2021, approximately $6 trillion, equivalent to about twice the annual economic output of Britain, has been wiped off the value of Chinese and Hong Kong stocks. While the ultimate fate of the broader company remains unclear, Evergrande’s winding-up order adds to the negative sentiment among investors. If mainland China does not recognize the liquidation order, international creditors are likely to incur substantial losses on their exposure to Evergrande.
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