A Hong Kong court has ordered China Evergrande, the world’s most indebted real estate developer, to liquidate its subsidiary in the territory after a failed attempt to restructure $300 billion in debt. of banks and bondholders. in giant Asia.
China Evergrande Group is the biggest in a series of Chinese developers to go bankrupt since 2020 under pressure from authorities to rein in their debt, which the country’s ruling Communist Party sees as a threat to the economy’s lackluster growth. in China.
But the campaign against excessive debt put the sector in crisis, and it became a drag on the economy because many companies found themselves in trouble, and their difficulties echoed in the financial systems inside and outside of China.
World financial markets have previously been rocked by fears that Evergrande could trigger a global default. But Chinese regulators say risks can be involved. Only a few billion dollars of Evergrande’s debt is owed to foreign creditors.
Judge Linda Chan said the court should order Evergrande to cease its business because of the company’s “lack of progress in presenting a viable restructuring proposal” as well as the company’s insolvency.
It is unclear what effect the liquidation order will have on China’s financial system. Hong Kong’s Evergrande shares fell nearly 21% on Monday morning before trading was suspended. But Hong Kong’s benchmark Hang Seng index gained 0.9%, and other real estate developers rose.
Fergus Saurin, an attorney representing a group of creditors, said Monday he was not surprised by the outcome.
“The company did not cooperate with us. “There was a series of last-minute procedures that did not work,” he said.
Evergrande CEO Shawn Siu told Chinese media 21Jingji that the company felt “deep regret” over the liquidation order. He emphasized that the order only affected China Evergrande’s Hong Kong-listed division.
The company’s two divisions are separate legal entities, he said. The Chinese mainland company will continue to operate and deliver assets to buyers, he added.
The 21Jingji article appeared to be unavailable as of Monday afternoon, hours after it was published.
Real estate is fueling China’s economic growth, but builders are running deep in debt as they fill cities with apartment and office towers. That helped push total household, business, and government debt to the equivalent of more than 300% of annual economic output, which is unusually high for a middle-income country.
The effects of the real estate crisis have also shaken China’s opaque banking industry, where some institutions offer financial services but operate outside of banking regulation, such as Zhongzhi Enterprise Group. Zhongzhi, which lent a lot of money to developers, declared insolvency.