HONG KONG (AP) – A Hong Kong court has ordered China Evergrande, the world’s most indebted real estate developer, to pay $3,000 owed to banks and bondholders, fueling concerns about China’s growing debt burden. It was ordered to be liquidated after a billion-dollar restructuring effort failed.
“There will be a situation where the court says enough is enough,” Judge Linda Chan said Monday. He said it was appropriate for the court to order Evergrande to liquidate its operations, given Evergrande’s bankruptcy as well as the “lack of progress on the part of the company to come up with a viable restructuring plan.”
China Evergrande Group is one of the largest in a string of Chinese development companies to go bankrupt since 2020 due to government pressure to rein in soaring debts from the ruling Communist Party, which it sees as a threat to China’s slowing economic growth. It is one.
However, the real estate industry is in crisis due to a crackdown on excessive borrowing, which is holding back the economy. Many other developers are also in financial trouble, with their woes spilling over into China’s financial system both domestically and internationally.
Global financial markets had previously been reeling from concerns that Evergrande’s liquidation would cause a global shock. But Chinese regulators said the risks could be contained. Evergrande owes foreign creditors about $25.4 billion, according to court documents released Monday.
“There is no question that the company is severely insolvent and unable to pay its debts,” the document said.
Approximately 90% of Evergrande’s business is in mainland China. Its chairman, Xu Jiayin, was detained by authorities in late September on suspicion of “illegal crimes.”
It is unclear how the liquidation order will affect China’s financial system or Evergrande’s operations, with Evergrande struggling to hand over homes to families who have put their life savings into such investments and who have already paid up. However, it has not yet been handed over.
Evergrande’s shares, which are traded in Hong Kong, plunged nearly 21% early Monday ahead of the trading halt. However, Hong Kong’s benchmark Hang Seng Index rose 0.9%, and some property developers saw their stock prices rise.
Country Garden, China’s largest real estate developer, initially rose nearly 3%, but ended up flat. Sunac China Holdings rose 2.4%.
The Shanghai Composite Index fell 0.9%, and Shenzhen’s A-share index fell more than 2%.
Evergrande received a stay from a Hong Kong court in December, saying it was “elaborating” a new debt restructuring plan for more than $300 billion in debt. There is a possibility of an appeal against the judgment.
Fergus Solin, a lawyer representing the special creditors group, said Monday he was not surprised by the outcome.
“The company has failed to engage with us. There is a history of last-minute engagements that have yielded no results,” he said.
Saurin said the team worked in good faith during the negotiations. He said that Evergrande “only bears responsibility for the collapse.”
The Evergrande Court “has not shown that there is a useful purpose for the court to postpone the petition. There is no viable proposal that would receive the support of a majority of creditors, let alone a restructuring plan,” Judge Chan said. . Remarks published online Monday.
He accused the company of offering only “general ideas” about what could be presented in the form of a restructuring proposal. Creditors’ interests will be further protected if Evergrande is thrown out by the court, she said.
Evergrande CEO Sean Xiu told Chinese news outlet 21Jingji that the company was “very disappointed” by the liquidation order. He stressed that the order only affects the Hong Kong-listed China Evergrande unit.
He said the group’s domestic and international divisions are separate legal entities. Siu said Evergrande will continue to operate smoothly and strive to deliver the property to the buyer.
“We will continue to make every effort to facilitate risk resolution and asset disposition in the event of an impact, and will continue to make every effort to ensure that all work proceeds fairly and in accordance with the law.”
21Jingji’s article appears to have been temporarily deleted on Monday afternoon, but was republished soon after.
Evergrande defaulted on its financial obligations for the first time in 2021, just over a year after the Chinese government cracked down on lending to real estate developers in an effort to defuse a real estate bubble.
Hong Kong, a former British colony, operates under a separate legal system from communist-ruled China, but its influence is increasing.
In some cases, mainland courts have upheld Hong Kong bankruptcy judgments, but analysts say Evergrande’s case is a test case.
Real estate drove China’s economic boom, but developers borrowed heavily to turn cities into forests of apartments and office towers. This has resulted in total corporate, government and household debt equivalent to more than 300% of annual economic output, an unusually high level for a middle-income country.
The fallout from the real estate crisis has also affected China’s shadow banking industry (institutions such as Zhongzhi Enterprise Group, which provide financial services similar to those of banks but operate outside banking regulations). Nakashi, which had made large loans to developers, said it was in a state of bankruptcy.
Canis Leung and Zeng Su, The Associated Press
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