Hong Kong: A Hong Kong court has ordered property developer China Evergrande Group to liquidate after it was unable to reach a restructuring deal with creditors.
The world’s most indebted property developer has more than $450 billion in liabilities across its portfolio and has become a symbol of China’s property crisis.
Residents walk past a map showing Evergrande development projects in China.Credit: AP
The group, which fuelled years of unsustainable growth through unfinished developments, has been in a spiral since Chinese authorities tightened lending restrictions on the sector to try and put a stop to a wider contagion in the world’s second-largest economy.
Judge Linda Chan said it was appropriate for the court to order Evergrande to wind up its business given a “lack of progress on the part of the company putting forward a viable restructuring proposal” as well as Evergrande’s insolvency.
Evergrande was granted a brief reprieve in December after it said it was attempting to “refine” a new debt restructuring plan of more than $US300 billion ($455 million) in liabilities.
Monday’s liquidation order is likely to affect China’s financial system, even as authorities try to prevent a sell-off in the Chinese stock market. Evergrande’s liquidation will likely also lessen confidence in the property sector, which has been slumping as developers struggle to meet their obligations following a crackdown on excessive borrowing in the sector.
Up to 60 per cent of household wealth in China is tied up in housing. The high levels of concentration mean shoppers are less likely to spend as property prices fall, leaving its economy vulnerable to property downturns after the shock of COVID-19.
China’s property crisis has filtered not just through its own economy but through global markets, shrinking revenue for companies, including exporters from Australia.
Fergus Saurin, a lawyer representing an ad hoc group of creditors, said he was not surprised by the outcome.
“The company has failed to engage with us. There has been a history of last-minute engagement which has gone nowhere,” he said.
Saurin said that his team had been working in good faith in the entire process and that Evergrande “only has itself to blame for being wound up”.
Evergrande Group has been ordered into liquidation by a Hong Kong court.Credit: AP
The company first defaulted on its financial obligations in 2021, just over a year after Beijing clamped down on lending to property developers in an effort to cool a property bubble.
It’s unclear how the liquidation order will affect Evergrande’s vast operations in the Chinese mainland. As a former British colony, Hong Kong operates under a legal system that is separate, though increasingly influenced by, communist-ruled China’s.
In some cases, mainland courts have recognised bankruptcy rulings in Hong Kong but analysts say Evergrande’s is something of a test case.
Real estate drove China’s economic boom, but developers borrowed heavily as they turned cities into forests of apartment and office towers. That has helped to push total corporate, government and household debt to the equivalent of more than 300 per cent of annual economic output, unusually high for a middle-income country.
Others developers including Country Garden, China’s largest real estate developer, have also run into trouble, their predicaments rippling through financial systems in and outside China.
Evergrande’s Hong Kong-listed shares plunged nearly 21 per cent before they were suspended from trading on Monday. The benchmark Hang Seng index rose 1 per cent after the ruling, while other property companies’ shares advanced. Country Garden gained 2.9 per cent and Sunac China Holdings jumped 4 per cent.
The fallout from the property crisis has also affected China’s shadow banking industry – institutions that provide financial services similar to banks but operate outside of banking regulations, such as Zhongzhi Enterprise Group. Zhongzhi, which lent heavily to developers, said it was insolvent.
AP
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