A Hong Kong court has issued a landmark decision ordering the liquidation of China Evergrande, the world’s most heavily indebted real estate developer, following its unsuccessful attempt to restructure a colossal $300 billion debt owed to banks and bondholders. The ruling by Judge Linda Chan on Monday was prompted by Evergrande’s failure to present a viable restructuring proposal and its existing insolvency. The move signals a significant development in the ongoing crisis in China’s property sector, where the government has been pressuring developers to curb excessive borrowing, viewing it as a threat to the nation’s economic stability.
Concerns about the potential global repercussions of Evergrande’s liquidation had previously rattled financial markets, but Chinese regulators have assured that risks can be contained. Most of Evergrande’s debt is owed domestically, minimizing the impact on foreign creditors. The court’s decision raises uncertainties about the broader implications for China’s financial system and the fate of Evergrande’s extensive operations on the Chinese mainland. As a former British colony, Hong Kong operates under a legal system separate from mainland China’s, and Evergrande’s case serves as a test of how mainland courts may recognize bankruptcy rulings in Hong Kong.
Despite Evergrande’s Hong Kong-traded shares plummeting nearly 21% before suspension, Hong Kong’s benchmark Hang Seng index saw a rise, and other property developers experienced gains in their share prices. China’s largest real estate developer, Country Garden, gained 2.9%, while Sunac China Holdings jumped 4%. The Shanghai Composite index dropped 0.6%, and Shenzhen’s A-share index fell over 2%. Evergrande’s CEO, Shawn Siu, expressed “utmost regret” at the liquidation order, emphasizing its impact on the Hong Kong-listed unit but assuring efforts to continue smooth operations and property deliveries. The fallout from Evergrande’s crisis has broader implications for China’s economic landscape, shadow banking industry, and ongoing efforts to address excessive debt in the property market.
