Evergrande, a Chinese real estate giant, has been declared bankrupt by the Hong Kong court

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Justice understood that the company was unable to offer a concrete restructuring plan more than two years after a debt default of over US$300 billion. Facade of the China Evergrande Center in Hong Kong. REUTERS/Tyrone Siu/File Photo/File Photo Chinese real estate giant Evergrande Group had a bankruptcy order declared by the Hong Kong court this Monday (29), in yet another episode that demonstrates the crisis in the construction market in the country. Judge Linda Chan decided to liquidate the developer, which has more than US$300 billion in total debt. Evergrande was unable to offer a concrete restructuring plan, more than two years after defaulting on its debt and after several court hearings. “It’s time for the court to say enough is enough,” Chan said in court on Monday. The company had been working on a $23 billion debt restructuring plan with a group of creditors known as the bondholder ad hoc group for nearly two years. It is possible to appeal the winding up order, but the process would continue pending the outcome of the appeal. The market assesses that the Hong Kong court’s decision will have little impact on the company’s operations, including house construction projects in the short term, as it could take months or years for the liquidator appointed by the creditors to take control of the subsidiaries in the Mainland China — a different jurisdiction than Hong Kong. FIND OUT MORE How the crisis in China’s real estate sector could impact Brazil’s economy China’s economy grew 5.2% in 2023, says Chinese premier Experts analyze the impact of population reduction on the Chinese economy Evergrande was founded in 1996 and achieved prosperity in the real estate market. The company signs construction projects in 280 cities, has a subsidiary in the electric vehicle market, a media company and even an amusement park. Evergrande’s expansion was sponsored by unprecedented debt, becoming the largest in the sector and with interest rates exceeding the payment capacity. High debt tends to be a common characteristic in construction companies due to the very nature of the business. It is necessary to put money up front to finance projects and wait for it to be received little by little, as buyers finance their properties. Since 2021, however, Evergrande has overextended its cash commitment and the global crisis caused by the pandemic has affected expected revenue. What happens now? The decision sets the stage for what is expected to be a lengthy and complicated process with possible political considerations as investors watch whether Chinese courts will recognize Hong Kong’s decision. International investors will focus on how Chinese authorities will treat foreign creditors when a company collapses. Judge Linda Chan appointed Alvarez & Marsal as liquidator, saying the appointment is in the interests of all creditors as it can take charge of a new restructuring plan for Evergrande at a time when board chairman Hui Ka Yan, is being investigated on suspicion of crimes. The liquidation decision creates more uncertainty for China’s already fragile capital and property markets. Evergrande chief executive Siu Shawn told Chinese media that the company will ensure that home construction projects will still be delivered despite the liquidation order. “Our priority is to see as many of the businesses retained, restructured and remain operational as possible. We will pursue a structured approach to preserve and return value to creditors and other stakeholders,” Tiffany Wong, managing director of Alvarez & Marsal, told Reuters. Edward Middleton, also managing director of Alvarez & Marsal, said the company would immediately go to Evergrande’s headquarters. “It is not the end, but the beginning of the protracted liquidation process, which will make Evergrande’s daily operations even more difficult,” Gary Ng, senior economist at Natixis, also told Reuters. “As the majority of Evergrande’s assets are in mainland China, there is uncertainty about how creditors can seize the assets and how repayment priority will be given to offshore bondholders, and the situation could be even worse for shareholders.” China’s population shrinks for second year in a row Tepid growth Beijing is struggling with an economy that, by China’s standards, is showing low growth. The real estate market, which was one of the main highlights of China’s golden years, is in the worst crisis in nine years. The stock market is near five-year lows. A further blow to investor confidence could further undermine policymakers’ efforts to revive growth. Evergrande has argued that the liquidation could harm the company’s operations and its property management and electric vehicle units, which in turn will harm the group’s ability to pay all creditors. Before Monday, at least three Chinese developers had been ordered to liquidate by a Hong Kong court since the start of the current debt crisis in mid-2021. * With information from Reuters

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