The world's most indebted group, Evergrande Group ordered to liquidate assets

Evergrande is the world's most indebted real estate group with a total debt of more than 300 billion USD (nearly 7,339 trillion VND). This is considered a new blow to China's fragile real estate market, and at a time when policymakers are stepping up efforts to prevent the crisis from spreading.

Judge Linda Chan ruled that the group could not provide a more specific restructuring plan and could not prove it had enough assets to repay its debts, Reuters reported.

Residential buildings at the Evergrande apartment complex in Beijing, China

Judge Chan appointed Alvarez & Marsal (USA) as liquidator, saying it would benefit all creditors as the company could be responsible for Evergrande’s new restructuring plan. Evergrande founder Hui Ka-yin is currently under investigation for suspected criminal conduct.

The liquidation request was filed by Top Shine, an investor in Evergrande’s subsidiary Fangchebao, in June 2022. According to Top Shine, Evergrande had not honored an agreement to buy back shares in the subsidiary, according to The Guardian.

Evergrande ordered by court to liquidate assets

Impact on China's real estate market

Evergrande, with $240 billion in assets, has plunged China’s already struggling property sector into recession after it defaulted in 2021. The liquidation ruling has created further volatility in the country’s capital and property markets.

Beijing is already seeing its economy underperform, with the property market at a nine-year low and stock prices near five-year lows. Any fresh hit to investor confidence could further undermine policymakers’ efforts to revive growth.

Evergrande's bankruptcy threatens China's property market

Evergrande was working on a $23 billion debt restructuring plan, but the plan failed in September 2023 after Mr. Hui Ka-yin was investigated.

Evergrande CEO Siu Shawn told Chinese media that the company would ensure that its housing projects would be delivered despite the liquidation order. He added that the ruling would not affect the operations of Evergrande's units on the mainland or in China's special economic zones.

Meanwhile, Ms. Tiffany Wong, CEO of Alvarez & Marsal said: "Our priority is to retain, restructure and maintain operations to the maximum extent possible. We will pursue a structured approach to preserve and return value to creditors and other stakeholders." Despite this, investor confidence remains weak.

Complicated process

Reuters quoted Gary Ng, senior economist at Natixis (France), as saying: "This is not the end but the beginning of a prolonged liquidation process, which will make Evergrande's daily operations even more difficult."

“Since most of Evergrande’s assets are in mainland China, there are uncertainties about how creditors can seize assets and the order in which overseas bondholders will repay, and the situation could be even worse for shareholders,” said Ng.

The Hong Kong court ruling is expected to have little impact on Evergrande’s operations, including its housing projects, in the near term because it could take months or years for an offshore liquidator appointed by creditors to take control of subsidiaries across mainland China, a different jurisdiction than Hong Kong.

Evergrande filed for a stay of liquidation on Jan. 29, as its lawyers said the company had made “some progress” on its restructuring proposal. As part of the latest offer, the developer has proposed that creditors swap their debt for all of the company’s shares in two Hong Kong units, compared with about 30% of the shares in the subsidiaries before the final hearing in December 2023.

Evergrande's lawyers argued that liquidation could harm the company's operations as well as its asset management and electric vehicle units, which would in turn affect the group's ability to repay all creditors.

Evergrande may appeal the liquidation order, but the liquidation process will continue pending the outcome of the appeal, according to Reuters.

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