The fall of a real estate giant in China. A Hong Kong court on Monday ordered the liquidation of Evergrande, whose astronomical debt and setbacks have regularly made headlines for two years.
The group was unable to present a restructuring plan acceptable to its creditors. 20 minutes takes stock of the impact of the decision for Evergrande and for China:
What do Evergrande’s creditors want?
Evergrande was China’s largest real estate company and ruled over a sector that boomed when real estate became the foundation of the growing wealth of a burgeoning middle class. Based in Foshan (south of China), Evergrande employed nearly 70,000 people full-time at the end of 2022. But the company’s financial difficulties led to the halting of construction sites, while aggrieved homeowners were left with unfinished homes amid an economic slowdown and falling prices. Unable to repay the interest on its loans, Evergrande defaulted on payments in December 2021.
In August, the group declared bankruptcy in the United States, a measure intended to protect its American assets. One creditor, Top Shine Global, filed a liquidation petition in Hong Kong against China Evergrande Group in 2022 and the case dragged on while the parties tried to negotiate a deal. At a hearing in October, Evergrande’s creditors’ recovery rate was estimated at less than 3%. After several months, a Hong Kong judge ruled Monday that there was a “clear lack of progress by the company in presenting a viable restructuring plan” and ruled it liquidated.
What will happen next?
Judge Linda Chan is to appoint a liquidator for Evergrande’s assets in Hong Kong. The judge said the decision would mean that group boss Xu Jiayin (also known by his Cantonese name Hui Ka Yan) no longer controlled the company. The group had a colossal slate estimated at $328 billion at the end of June, according to the company’s most recent figures. The company has $236.6 billion in assets in mainland China and elsewhere. Some of them have already been sold in recent months to obtain liquidity, amounting to around $7 billion as of the end of November, according to Chinese media. But it is not yet clear to what extent the company’s assets can be recovered by its creditors abroad.
As the liquidation judgment was made in Hong Kong, any seizure of the company’s assets on the mainland may require a separate court order in that country. “The courts (on the mainland) can refuse to recognize or assist Hong Kong liquidators,” Jonathan Leitch, of the law firm Hogan Lovells, told AFP.
“As the vast majority of assets are located (in mainland China), the liquidators will need to consider whether these assets will have any value once priority creditors have been satisfied,” he said. Zerlina Zeng, credit analyst at Creditsights Singapore, quoted by the Bloomberg agency, “doubts that overseas creditors will receive substantial amounts of recovery thanks to the liquidation judgment.”
What will Beijing’s reaction be?
China has launched several rounds of bailouts of its ailing real estate sector, and Beijing announced last week that its banks had extended nearly 10 trillion yuan ($1.4 trillion) in loans to the sector last year. But authorities have failed to prevent property sales and prices from continuing to fall in many cities. Authorities should ensure that the decision does not snowball, analysts say.
They “will probably manage this liquidation in such a way as not to cause a major contagion effect to other sectors of the economy,” Shane Oliver, chief economist at financial services company AMP, told AFP. “For those anxiously reading today’s headlines […] and panic: the fall of Evergrande in 2021 did not lead to a moment in China similar to (the financial crisis triggered by) Lehman Brothers and the disintegration of its already dead shell in 2024 will not do so either. , tempers the analysis firm China Beige Book in a message on X, formerly Twitter.