Evergrande has little to escape its collapse

Evergrande has little to escape its collapse

Costfoto/NurPhoto/Getty Images, Tyler Le/BI

  • The Hong Kong court decided to liquidate China Evergrande.
  • But experts say there may be little to cure.
  • Evergrande, one of China’s top developers, has been experiencing a liquidity crisis since 2021.

China Evergrande, the world’s most indebted property developer, received a liquidation order from a Hong Kong court on Monday but may have little time left to recover, experts said.

The order comes more than two years after Evergrande failed the country’s property sector.

The liquidators will now take control of the company’s assets and prepare to sell them to pay off the company’s debts, which total $300 billion.

An offshore investor called Top Shine Global filed a liquidation suit against Evergrande in 2022. The trial was repeatedly delayed as Evergrande sought more time to restructure its debts.

On Monday, Evergrande filed for another adjournment. But Judge Linda Chan said Evergrande had failed to offer a concrete restructuring plan and ordered it dissolved.

“It’s time for the court to say enough is enough,” Chan said, according to Reuters.

Shares of Evergrande and its subsidiaries were suspended on Monday following news of the order. Shares in Hong Kong-listed China Evergrande Group fell 21% ahead of the hearing.

Evergrande did not immediately respond to BI’s request for comment.

Monday’s court ruling is a far cry from when Evergrande was China’s top developer by sales in 2016.

Evergrande It has been in a liquidity crisis since 2021. First of all default on an offshore dollar bond in December of that year. Company He filed for bankruptcy protection in the United States It canceled its restructuring plan in August and in October due to worse-than-expected property sales.

“There are only losers in the collapse of the Evergrande”

Siu Shawn, CEO of Evergrande, told local media in China that the real estate company will still deliver homes in China.

But several experts BI spoke to before Monday’s court ruling said Evergrande’s liquidation would be difficult.

It’s bad news for lenders, Mat Ng, managing director at Grant Thornton, a professional services firm specializing in restructuring, told BI.

“Given its scale, the liquidation of Evergrande will be a difficult process and the likely return to creditors is expected to be low,” Ng said.

That’s particularly the case with China’s property sector in the dumps amid sluggish demand and falling house prices – meaning any sale of Evergrande’s assets would likely be at bargain prices, Debtwire chief John Bringardner said. earnings data and news provider, told BI in November.

“At this point in the process, there are only losers in the collapse of Evergrande,” added Bringardner.

In July, Evergrande estimated that its debt would return 3.4% if the company were liquidated, according to Reuters, citing an analysis by Deloitte. Lenders now expect a recovery rate of less than 3%, according to the news agency.

Investors, especially outside of China, seem to be out of luck, and the process of getting their investment can take years.

“Stakeholders onshore are busy working to ensure that homebuyers will eventually receive the homes they paid for one way or another, but retail mom-and-pop investors in the company’s offshore securities will face further uncertainty and delay, which is likely to will continue,” Daniel Margulies, a partner at Dechert, a law firm specializing in restructuring in Asia, told BI.

The court ruling on Evergrande’s liquidation also means that issues of this magnitude in China “are unlikely to be restructured and will likely end up in some form of onshore or offshore liquidation,” Margulies said.

Evergrande’s liquidation comes as China’s economy continues to struggle

Evergrande’s liquidation has caused China’s economy to a property crisis, deflationary pressure, and a demographic crisis.

Market sentiment about China’s economy is so bleak that the country’s stock markets fell massively last week as investors dashed for the exit door.

Despite the potential fallout from Evergrande’s liquidation, there may be some upside in the long term.

“Evergrande’s liquidation is a sign that China is willing to go to extreme lengths to deflate the property bubble,” Andrew Collier, managing director of Orient Capital Research, told Reuters.

“It’s good for the economy in the long run, but it’s very difficult in the short term,” he said.

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