Hong Kong court orders Chinese giant Evergrande to be liquidated

On Monday, a Hong Kong judge ordered liquidation of debt-ridden Chinese real estate giant Evergrande in favor of its foreign creditors, a decision that opens up a long and uncertain process over whether it will be recognized in mainland China, where most of its assets are located.

“The hearing lasted a year and a half and The company has not yet been able to present a concrete restructuring proposal. “I think it’s time for the court to say enough is enough,” the judge in the case, Linda Chan, said today, as she granted Evergrande up to seven extensions to negotiate an agreement with its creditors.

The international press noted that Evergrande’s latest round of negotiations with its major creditors ended in separation and that they have therefore decided to support a liquidation application filed in mid-2022 by a local investor due to non-payment of approximately US$110 million in share buybacks.

Last year, Evergrande said, citing Deloitte analysis, that the recovery rate for investors in the event of liquidation it will be about 3.4%.

A few minutes after this news, Evergrande shares, which can still appeal the decision, fell by almost 21%, declines in performance of electric vehicle manufacturing subsidiaries (-18.2%) and property management (-2.5%); The three companies suspended trading around 10:30 local time.

“Complicated and long process”

At another hearing a few hours later, the court ordered American consulting firm Alvarez and Marsal as Evergrande’s judicial administrator, thereby complying with the preferences of the group of creditors.

While Evergrande CEO Sean Siu assured that the company would “collaborate” with recipients and “actively communicate” with them, he also indicated that “We will take all legal measures and will contribute to the normal operation of the group’s enterprises.”

In an interview with an economic newspaper Business Bulletin of the 21st CenturySiu explained that The order concerns China Evergrande, The group’s subsidiary is listed on the Hong Kong stock exchange, so the conglomerate’s “management and operations” “remain intact” as Hong Kong’s judicial system is separate from China’s under the former British colony’s semi-autonomous statute.

Will China recognize this order?

Hong Kong newspaper Standard supports this theory by stating that “although the order may have limited operational effect, “Its psychological consequences could precipitate a crisis in the real estate market,” and remember that at least three other Chinese promoters have already undergone similar procedures in Hong Kong since 2021.

In recent weeks, several experts have already expressed doubts about Will the liquidation order be accepted in mainland China? as this type of procedure is clearly excluded from the mutual recognition of judgments between China and Hong Kong, and Canton – Evergrande’s headquarters – is not one of the three cities included in the pilot program that recognizes liquidation processes initiated in Hong Kong. .

“Recipients will have very limited enforcement powers with respect to onshore assets (located in mainland China). if they don’t achieve this recognition”“says Lance Jiang, a partner at Ashurst LLP, as quoted by a local newspaper. South China Morning Post.

Evergrande with a commitment of about $330 billion. defaulted more than two years ago following a liquidity crisis due to Beijing’s restrictions on highly leveraged property developer financing, followed by intervention by Chinese authorities.

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The group, which had become the main visible face of China’s real estate crisis, plunged into a new crisis last year after its founder and president, Xu Jiayin, was placed under a kind of house arrest “suspicion of illegal activities.”

(EFE)