A Hong Kong court has ordered the world’s most indebted property developer, China’s Evergrande Group, to liquidate, following its failure to negotiate a restructuring agreement with creditors.
Judge Linda Chan ruled that Evergrande’s inability to present a feasible restructuring plan, and its current insolvent state, necessitated the winding up of the company’s operations.
This liquidation order, issued this week, poses a potential risk to China’s financial stability, according to The New Daily.
The authorities are striving to mitigate any adverse impact on the Chinese stock market.
The decision is expected to further diminish confidence in the already struggling property sector, which has been grappling with debt issues after a regulatory crackdown on excessive borrowing.
In December, Evergrande briefly delayed proceedings by announcing its intention to revise its debt restructuring plan, addressing more than $US300 billion (equivalent to $A456 billion) in liabilities.
However, these efforts have now culminated in the court’s decision to liquidate.
Fergus Saurin, representing a group of creditors, expressed his lack of surprise at the outcome.
He criticised Evergrande for its inadequate engagement and last-minute efforts that led nowhere.
“The company has failed to engage with us,” Mr Saurin stated, holding Evergrande solely responsible for its predicament.
Evergrande, recognised as the world’s most indebted property developer, faced challenges following China’s clampdown on lending in the real estate sector, aimed at deflating a property bubble.
The company initially defaulted on its financial commitments in 2021, a little over a year after Beijing’s regulatory tightening.
The broader implications of the liquidation order on Evergrande’s extensive operations in mainland China remain uncertain.
Hong Kong, a former British colony, maintains a distinct legal framework, though it is increasingly influenced by mainland China’s legal system.
The Evergrande case presents a test scenario for the recognition of Hong Kong’s bankruptcy rulings in mainland courts.
China’s economic surge has been significantly driven by real estate development, leading to heavy borrowing by developers.
This has escalated overall corporate, government, and household debt to over 300 per cent of the nation’s annual economic output, a concerning level for a middle-income country.
Other major developers like Country Garden are also facing difficulties, with their troubles affecting financial systems within and beyond China.
In response to the liquidation news, Evergrande’s shares in the Hong Kong market plummeted nearly 21 per cent before trading was suspended on Monday.