This article is from the Australian Property Journal archive
THE world’s most indebted property developer, embattled Chinese giant Evergrande, has been ordered to liquidate, in what is being described as China’s Lehman Brothers moment with flow on effects for consumer confidence in the real estate sector in the world’s second largest economy.
Late yesterday a Hong Kong court ordered the company to liquidate after running out of patience, when a restructuring deal with creditors fell through on the weekend.
Judge Linda Chan noted Evergrande’s insolvency and a “lack of progress on the part of the company putting forward a viable restructuring proposal” in making the decision.
“The company said it will do one, two, three,” she said.
“None of that has been done.
“I think it is the time for the court to say enough is enough.” Justice Chan said.
Evergrande and overseas creditors failed to reach a last-minute deal on the weekend, the latest in a string of attempts to keep the company afloat. It had been given a two-month reprieve at the beginning of December by Chan to come up with a deal.
China’s property market woes have been central to the country’s stagnating economy, with countless apartment towers left empty or incomplete as developers struggle with finances and demand wanes.
Evergrande first defaulted in 2021, a year after Beijing introduced the “three red lines” measures that were designed to crimp developers’ borrowing and halt a growing property bubble. The company’s liabilities have since skyrocketed, to a reported range of A$455 billion and $498 billion. It lost A$118 billion over 2021 and 2022 and filed for bankruptcy in the United States last year.
More than 20% of the value of Evergrande’s shares, listed in Hong Kong, was wiped on Monday before its trading was suspended.
It remains to be seen just how the liquidation order will play out in practice, given the differing legal systems in Hong Kong and China, where the vast majority of Evergrande’s huge portfolio and estimated 1,200-project pipeline are located, and operated by local units that could be difficult for the liquidator to seize.
Evergrande (US$ 300 billion liabilities) will go down in history as the largest global real estate company collapse, and the second biggest corporate collapse behind the Lehman Brothers (liabilities exceeding US$600 billion) in 2008.
In the meantime, the company’s subsidiary Evergrande Property Services in Hong Kong, announced it has launched legal action against the parent company, seeking to recover 11.4 billion yuan (US $1.59 billion) of pledge guarantees on deposit certificates.
Evergrande’s billionaire founder and chairman Hui Ya Kan was detained by Chinese police and put under surveillance last year, while there were allegations that he attempted to assets offshore while the company struggled to finish projects.
The order will send one of the biggest shudders yet through the Chinese real estate sector. China’s biggest private developer, Country Garden was deemed to be in default on a dollar bond for the first time late last year and its own survival has come into question. It has nearly completed its sell-down of Australian assets, reportedly offloading its last remaining estate, the 330-hectare undeveloped portion of Wilton Greens in south western Sydney for around $240 million. It will continue developing stage one lots and retain stage two lots, which have yet to be approved. That followed the circa $250 million sale of Melbourne project Windermere.
China has just tightened rules around short-selling – effective from yesterday – hoping to stop the growing sell-off of stocks in another harried bid to take the pressure off the economy.
