Hong Kong's High Court issued a winding-up order against China Evergrande Group on Monday (January 29), and the dust finally settled on Evergrande's debt crisis, which lasted more than two years. Although Evergrande's liquidation was expected by the market, the real estate giant's lack of recovery is still a heavy blow to China's property market and financial markets, which are still at the bottom.
Hong Kong High Court Judge Chan Ching-fan said on Monday that the Evergrande winding-up hearing had lasted a year and a half, but the company had still failed to propose a concrete restructuring plan and kept asking for a postponement of the hearing. ”
Evergrande defaulted on its offshore debts at the end of 2021, and after creditors filed a winding-up application with the Hong Kong High Court in June 2022, Evergrande submitted several applications for adjournment of hearings, resulting in seven consecutive postponements of hearings. It is reported that Evergrande had submitted a new debt restructuring plan to creditors before the hearing, but failed to reach a restructuring agreement.
As of the end of 2022, the group's total debt exceeded RMB2.4 trillion (S$454.8 billion), making it the world's most indebted property developer, according to Evergrande's reissued financial report last year.
After the winding-up order was issued, the trading of the three Evergrande stocks listed in Hong Kong was suspended during the session. China Evergrande fell 20.87% to HK$0.16 (S$0.03), with Evergrande falling 18% before trading was suspended. Evergrande Property, which saw the smallest decline (2.5%), will resume trading on Tuesday (January 30).
Evergrande has faltered in the past two years, and three stocks have been repeatedly suspended, but there is still business operation. After the winding-up order is issued, Evergrande is required to cease the company's business, and the liquidators will assess and realise the assets, and repay the debts in the order prescribed by law. Upon the termination of the winding-up proceedings, the company will also be dissolved. According to some analysts, the whole process will take at least five years.
Industry insiders pointed out that Evergrande can appeal against the winding-up order, but the winding-up process will continue during this period. If Evergrande can also come up with a new restructuring plan, or if there are "white knights" willing to provide financial assistance, it may cancel or suspend the winding-up order, but this is very unlikely given Evergrande's high debt.
Most of Evergrande's assets have been sold, seized by creditors or frozen by the courts. Deloitte, a consulting firm, analyzed earlier that if Evergrande is liquidated, the recovery rate of creditors is expected to be 3.4%. Xu Jiayin, chairman of Evergrande, was investigated last year for being involved in illegal crimes, and the recovery rate fell to less than 3%.
Peng Shugang, a lawyer at Hengdu Law Firm, analyzed to the media that the challenges faced by Evergrande's overseas creditors in recovering arrears include differences in the legal system and liquidation procedures between mainland and port, and the possibility of complex procedures and lengthy time for cross-border enforcement of judgments.
On the same day that Evergrande was liquidated, the arrangement for mutual recognition and enforcement of judgments in civil and commercial cases between the mainland and Hong Kong came into effect, but the mutual recognition did not include bankruptcy (winding-up) cases. Among the three mainland pilot cities that recognize Hong Kong's bankruptcy orders, Evergrande's domicile happens to be Shenzhen, but Peng pointed out that such pilot cases are rare. In addition to making use of the mainland legal assistance arrangements and appointing mainland lawyers, creditors may also need to initiate independent liquidation proceedings in the mainland.
"Due to the huge amount of Evergrande's debt, the unfinished projects under construction in various provinces and cities, and the huge hidden dangers to social stability such as the failure of buyers to obtain real estate after payment, it is a long and difficult process for the Hong Kong court's winding-up judgment against Evergrande to be recognized and enforced in the mainland. ”
Evergrande Group's Chief Executive Officer Sean said that "every effort has been made and I am very sorry" for the liquidation, and stressed that the subject involved in the liquidation order is China Evergrande, which is listed in Hong Kong, and the Group will try its best to ensure the stability of its domestic business and operation, steadily promote key tasks such as ensuring the delivery of buildings, and will also actively communicate with the liquidators and perform relevant procedures in accordance with the law.
Following Evergrande, a number of Chinese real estate companies have fallen into debt crises one after another, and the heavy damage to the property market and financial markets has not yet been repaired. Although the government has introduced a number of rescue policies last year, it has not yet reversed the decline in the property market. Evergrande's liquidation is expected to further impact the confidence of other real estate companies and investors who are undergoing restructuring.
Yan Yuejin, research director of the E-House Research Institute, a real estate consulting agency, said that the evolution of Evergrande's liquidation incident is embarrassing and is a very significant event in the field of real estate financial risks. "However, liquidation itself can help better prevent and resolve risks, and relevant enterprises should also pay attention to such issues and learn lessons. ”