Failure to Present Restructuring Plan
Bankrupt Chinese real estate giant Evergrande has been ordered to liquidate by a Hong Kong judge. The judge argued that the deeply indebted firm has failed to present a stable restructuring plan even after more than two years since its default. Evergrande, known as the world’s most heavily indebted property developer, became the symbol of China’s property crisis.
Latest Blow to the Property Behemoth
The decision by Justice Linda Chan is yet another blow to the property behemoth, which is struggling amid fears that China’s property sector problems could have ripple effects on the country’s economy. This comes at a time when growth is slowing down. “It is time for the court to say enough is enough,” stated Chan during the court proceedings.
Complicated Process with Potential Political Considerations
The ruling sets the stage for a complex and prolonged process, potentially involving political considerations. Investors are closely watching to see if the Chinese courts will recognize Hong Kong’s ruling, given the number of authorities involved. Offshore investors are particularly interested in how foreign creditors will be treated in the event of a company’s failure.
Alvarez & Marsal Appointed as Liquidator
Chan has appointed Alvarez & Marsal as the liquidator, highlighting that their appointment would be in the interests of all creditors. With the new restructuring plan for Evergrande, the liquidator can take charge at a time when the company’s chairman, Hui Ka Yan, is under investigation for suspected crimes.
Further Uncertainty for China’s Capital and Property Markets
Evergrande, which possesses $240 billion of assets, caused turmoil in the struggling property sector and dealt a blow to the economy when it defaulted on its debt in 2021. The liquidation ruling adds to the existing uncertainty surrounding China’s fragile capital and property markets. Since the debt crisis unfolded, companies accounting for 40% of Chinese home sales have defaulted.
While Evergrande has the option to appeal the liquidation order, the liquidation process will continue until the outcome of the appeal is determined.
Source: FOX Business’ Bradford Betz and Reuters