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Chinese property behemoth Evergrande ordered to dispose

  • Evergrande liquidation ordered
  • Significant debt crisis symbolized
  • International impact uncertain

A Hong Kong court has ordered the liquidation of Evergrande, a debt-ridden Chinese property giant. Having seen multiple failures by the developer to restructure its debts, Judge Linda Chan declared, “Enough is enough.”

Evergrande, with over $300 billion in debt, symbolizes China’s real estate crisis. The impact of Hong Kong’s ruling in mainland China is uncertain. Despite a last-minute plea for a three-month extension, Judge Chan initiated the liquidation process, appointing Alvarez & Marsal Asia as liquidators.

The liquidators aim to minimize disruption, considering preserving or restructuring significant business parts. The investment world closely watches Evergrande, likening its crisis to Lehman Brothers’ bankruptcy.

China’s property sector remains unstable, with anxieties about Beijing’s reaction to the court decision. Evergrande’s shares in Hong Kong plummeted over 20% before trading was suspended.

Liquidators will explore restructuring options, possibly involving asset liquidation to settle debts. However, Beijing may only accept halting construction, affecting many Chinese awaiting their paid-for apartments.

Evergrande’s financial struggles began in December 2021, reflecting China’s debt-fueled property cycle. Chairman Hui Ka Yan faced an investigation for alleged criminal activities after flaunting a lavish lifestyle.

Many Chinese property buyers, having limited recourse, express their frustrations online. Significant investors, especially in Hong Kong, are pursuing legal action. Top Shine Global initiated the current legal action against Evergrande in June 2022.

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Evergrande Liquidation: Complex Challenges Ahead

Evergrande’s executive director, Shawn Siu, described the liquidation as “regrettable” but promised the completion of construction projects. Judge Chan noted that 90% of Evergrande’s assets are in mainland China, raising complex jurisdictional issues under the “one country, two systems” principle.

The enforcement of the liquidation order in mainland China is still being determined. Derek Lai from Deloitte highlights the challenges for the liquidator in controlling Evergrande’s operations in China.

Beijing may prioritize completing mainland projects for Chinese investors and consumers. It’s unlikely that mainland creditors will be paid before international creditors.

Despite possible non-compliance in China, Judge Chan’s ruling clearly highlights potential challenges for other developers and creditors. She also presides over cases involving defaulted developers like Sunac China, Jiayuan, and Kaisa. Jiayuan, like Evergrande, faced liquidation after failing to present a debt restructuring plan.

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