The financially beleaguered Chinese property titan, Evergrande, has been granted a final opportunity by a judge of the Hong Kong High Court to propose a fresh agreement over its colossal debts or face the prospect of liquidation. The hearing for resolving the winding-up was rescheduled from Monday to 4th December, with Justice Linda Chan stating it would be the final hearing prior to a definitive decision. Evergrande, with total liabilities surpassing $325bn (£268.4bn), is the globe’s most debt-ridden property developer.
Evergrande defaulted on its debts two years prior, and since then has been striving to devise a new repayment strategy. Justice Chan emphasised that Evergrande needed to put forth a “concrete” proposal or face a likely winding up of the company. However, she noted that a liquidator would be able to negotiate with creditors. Evergrande refrained from responding immediately to a request for comment by the BBC.
The lawsuit was initially filed by Top Shine Global, an investor in the Evergrande subsidiary Fangchebao, in June 2022. Top Shine Global claimed that Evergrande had failed to uphold an agreement to repurchase shares that the investor had acquired in the business.
Evergrande’s efforts to restructure its agreements with creditors suffered a significant setback last month when it announced that its founder, Hui Ka Yan, and one of its key subsidiaries were being investigated for suspected criminal activities. The company also disclosed that it had been prohibited by Chinese regulators from issuing new dollar bonds, a crucial component of its debt restructuring plan. Additionally, it called off planned creditor votes on its restructuring plan, which were initially scheduled for late last month.
The majority of Evergrande’s debt is owed to individuals within China, many of whom are regular citizens awaiting the completion of their homes. In 2021, when the company defaulted on its enormous debts, it sparked turbulence in the global financial markets given that the property sector accounts for approximately a quarter of China’s economy.
Several of China’s major real estate firms have defaulted in the past year and many are struggling to secure the funds necessary to complete developments. Evergrande now has a five-week window to devise a repayment plan acceptable to its creditors, a feat it has failed to achieve in the past two years.
The company’s survival has largely hinged on the fact that the majority of its debt is owed to lenders in China, who have limited legal avenues for recouping their money. In contrast, creditors outside mainland China have the right to file lawsuits against the company, as Top Shine has done, which could potentially trigger a court liquidation order.
However, the situation would not be neatly resolved through liquidation. Analysts suggest that this would significantly complicate matters. Eveline Danubrata, Asia Managing Editor at REDD Intelligence, noted that even if offshore creditors succeed in getting Evergrande liquidated, recovery prospects remain uncertain for them as most of Evergrande’s assets are in China.
Further complications arise in deciding which lenders get priority in a liquidation and who will complete the homes that over a million Chinese people are still waiting for Evergrande to deliver. A conceivable solution would likely necessitate significant cooperation with the Chinese government. Danubrata stated that pursuing onshore enforcement against Evergrande’s assets without some form of approval from the relevant authorities would likely be challenging.
