Hong Kong Court Orders Liquidation Of China Evergrande, Prompts Trading Halts
A Hong Kong court has issued a directive for the liquidation of China Evergrande Group, potentially causing disruptions in China's fragile financial markets as authorities strive to manage the escalating crisis. Trading in the shares of China Evergrande, China Evergrande New Energy Vehicle Group and Evergrande Property Services has been suspended, while the benchmark Hang Seng Index showed a 1.2 per cent increase.
According to Matt Simpson, Senior Market Analyst at City Index in Brisbane, the surprising aspect is the delayed liquidation of Evergrande. While the removal of underperforming assets might be viewed positively, Simpson doubts that this development alone will instill confidence in the property sector.
Ken Cheung, Chief Asian FX Strategist at Miuho in Hong Kong, notes that markets are closely monitoring the downturn in China's property sector. He anticipates an assessment of how the liquidation and related events may impact efforts to address issues in the Chinese property sector and the government's response.
Kenny NG, Securities Strategist at China Everbright Securities International, suggests that the liquidation could adversely affect mainland creditors' confidence, complicating Evergrande's restructuring in mainland China. This, in turn, might influence investor confidence in the mainland real estate industry and residents' willingness to buy properties, potentially dampening economic and capital market prospects.
The recognition and enforcement of the winding-up order from Hong Kong by mainland courts will determine whether offshore creditors can seek the sale of Evergrande's assets in mainland China. If acknowledged, offshore creditors may have an opportunity to claim assets in the mainland; otherwise, they can only pursue the liquidation of assets in Hong Kong.
Evergrande, the world's most indebted developer, defaulted on offshore debt in late 2021, emblematic of the broader debt crisis in China's property sector. With approximately USD 300 billion in liabilities and USD 240 billion in assets, Evergrande had been working on a USD 23 billion debt restructuring plan for two years. The original plan faced setbacks in late September when its founder, Hui Ka Yan, was investigated for suspected crimes. Despite an ad hoc bondholder group initially opposing the liquidation petition, the recent court ruling marks a significant development in Evergrande's complex financial situation.
