Hong Kong
CNN
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A Hong Kong court orders the liquidation of Evergrande Group, the world’s most indebted property developer, in another blow to investor confidence. This is because the slump in China’s real estate sector continues to weigh on the economy.
The liquidation order, issued by the city’s High Court on Monday, comes after the embattled Chinese real estate giant and its foreign creditors reached an agreement on how to restructure the company’s massive debt during talks that lasted 19 months. This was issued in response to the failure to reach the target.
“The interests of creditors are better served if the company is wound up by the court, allowing an independent liquidator to take control of the company,” Judge Linda Chan wrote in a judgment released Monday. It seems that way.”
Evergrande defaulted on its debt in 2021, triggering a real estate crisis in China’s economy whose effects are still felt today.The Shenzhen-based developer has total debt of It held 2.39 trillion yuan ($333 billion) at the end of June last year and filed for bankruptcy in New York in 2023.
Foreign creditors are owe something $25 billion, Hong Kong shown in court documents, One of the companies, Top Shine Global, has filed a petition for liquidation. To recoup some of their losses, they will play Evergrande in Hong Kong in June 2022.
The court appointed Alvarez and Marsal Evergrande said in a filing with the Hong Kong Stock Exchange that he will manage the company as liquidator. The company will have the power to seize Evergrande’s assets in Hong Kong, including the group’s office towers in the Wan Chai commercial district, and sell them to raise funds, but it will also have the power to seize Evergrande’s assets in Hong Kong, including the group’s office towers in the Wan Chai commercial district, and sell them to raise capital. The impact of this is unclear.
Evergrande CEO Xiao En told state media on Monday that the liquidation order would not affect the operation of Subsidy, an “independent legal entity” that includes its main real estate development business, Evergrande Real Estate Group. He said he would not. Most of its assets are in mainland China.
He told 21st Century Business Herald: “At present, there are no changes to the management and operation system of Evergrande Real Estate Group as an independent corporation and other domestic and foreign subsidiaries.”
That’s because the legal systems in Hong Kong and China remain different, even though the Chinese government has tightened its grip on the former British colony in recent years.
“Today’s liquidation order will have a very limited immediate impact on Evergrande’s land operations and assets,” said Brock Silvers, chief investment officer at Hong Kong-based Kaiyuan Capital.
Hong Kong and the mainland city of Shenzhen, home to Evergrande, have a mutual bankruptcy recognition agreement, but it is “virtually dysfunctional” and a court ruled Mr Silvers said it was “very unlikely” that people in the city would be aware of offshore liquidators.
“Doing so would threaten the availability of Evergrande’s land assets to resolve land obligations. On land, tomorrow’s Evergrande will look a lot like yesterday’s Evergrande,” he said. said.
Chinese markets were mixed on Monday following the liquidation order, with Hong Kong stocks rising after a brief respite from last week’s prolonged decline, but Shanghai and Shenzhen indexes falling again.
Since the recent peak in February In 2021, around $6 trillion, roughly twice the UK’s annual economic output, was wiped from the value of Chinese and Hong Kong stocks.
While the fate of the company as a whole may still be uncertain, Evergrande’s liquidation order is yet another blow to investor sentiment. If mainland China does not approve the liquidation order, International creditors are likely to suffer significant losses from their exposure to Evergrande.
“Although Evergrande’s offshore liquidation was largely expected, it remains a significant setback for the already troubled land-based real estate sector and will further worsen investor sentiment,” Silvers said. .
Chinese Developers face $100 billion in debt maturities this year, and local government lending arms are also saddled with $650 billion worth of debt. Meanwhile, the real estate crisis is beginning to spill over into the broader financial system due to the exposure of shadow banks to the sector.
“Given these pressing solvency issues, Evergrande’s creditors are likely to face near-annihilation. All of this is contributing to the current confidence crisis in China’s capital markets.” added Silvers.
Apart from the record slump in real estate, Investors are also concerned about China’s deflation, debt, declining birthrate, shrinking workforce, and the Chinese government’s shift toward ideologically driven policies.
Evergrande, the poster child for China’s real estate crisis, announced a multibillion-dollar restructuring plan last March.
But those plans were derailed in September when Chinese authorities announced that the company’s founder and chairman, Xu Jiayin, had been detained by police on suspicion of “criminal crimes.”
The spiraling real estate crisis is hitting China’s economy hard.
For decades, China’s strong growth has been driven by a housing boom fueled by population growth and rapid urbanization. This industry accounts for 30% of the country’s GDP, and more than two-thirds of China’s household assets are accounted for by real estate.
However, the sector suffered in 2020 when the government cracked down on excessive borrowing by developers in a bid to defuse a real estate bubble. Since then, dozens of Chinese developers have defaulted on their debts.
The industry has since become a drag on the broader economy, which has struggled with three years of pandemic lockdowns and a series of headwinds, including record-high youth unemployment and increasing fiscal stress for local governments. We are facing a slow recovery.
The rate of decline in prices of newly built homes in December was the highest in about nine years, and real estate investment in 2023 decreased by 9.6% from the previous year, marking the second consecutive year of decline.
This story has been updated with new information.