A Hong Kong court on Monday delivered a decisive blow to China Evergrande Group, the embattled property giant, by ordering its liquidation. This decision adds further strain to the already precarious state of trust in China’s real estate market as authorities grapple with a mounting crisis.
Justice Linda Chan, presiding over the case, expressed her frustration at Evergrande’s failure to present a viable restructuring plan more than two years after defaulting on its offshore debt.
The company, known for being the most indebted in the world, faced liabilities exceeding $300 billion. In her statement, Justice Chan declared, “Enough is enough,” signaling the court’s impatience with Evergrande’s prolonged financial struggles.
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This move raises questions about how Chinese courts will respond to Hong Kong’s verdict, setting the stage for a complex and extensive liquidation process with potential political implications. Investors are keenly watching to understand how Chinese authorities will handle international creditors as the fallout from Evergrande’s collapse reverberates globally.
Alvarez & Marsal has been appointed as the liquidator, a decision justified by Justice Chan as serving the interests of all creditors. This move allows the company to oversee a new restructuring plan during the period when Evergrande’s chairman, Hui Ka Yan, is under investigation for potential crimes.
Evergrande, with $240 billion in assets, had already sent shockwaves through the economy in 2021 with its debt default, exacerbating the fragility of China’s real estate and finance markets. The liquidation order only adds further uncertainty to an already unstable situation.
Siu Shawn, the Chief Executive of Evergrande, assured the public through Chinese media that despite the liquidation order, the company would ensure the completion of ongoing construction projects. He promised that the decision would not impact the operations of Evergrande’s offshore and onshore businesses.
Tiffany Wong, Managing Director of Alvarez & Marsal, outlined the firm’s priorities after the appointment.
“Our priority is to see as much of the business as possible retained, restructured, and remain operational. We will pursue a structured approach to preserve and return value to the creditors and other stakeholders,” she said.
Edward Middleton, another Managing Director with Alvarez & Marsal, confirmed that the firm would promptly move to Evergrande’s headquarters to initiate the liquidation process.
Before the court’s decision, Evergrande’s stock experienced a sharp decline of up to 20%, leading to the suspension of trading in China Evergrande and its listed companies, Evergrande Property Services, and China Evergrande New Energy Vehicle Group. This suspension reflects the gravity of the situation and its potential ripple effects on associated entities.
The fallout from Evergrande’s liquidation is anticipated to have far-reaching consequences, not only for China’s real estate market but also for global investors and creditors. All eyes are now on Chinese authorities as the liquidation process unfolds, to see how they will manage the resulting challenges posed by the collapse of one of the world’s largest property developers.