A Hong Kong court has ordered the embattled China Evergrande to liquidate. According to the judge, the troubled developer has failed to come up with an adequate plan to deal with its $300 billion (RM1.4 trillion) in debt.
Evergrande has been the biggest story within China’s troubled property sector. The developer began to default on debt payments in 2021 as the Chinese property market began to cool. Since then, it has struggled to meet financial obligations. Going as far as to protect its US based assets by filing for Chapter 15 bankruptcy. Protection that does not extend to this latest ruling in Hong Kong.
China’s property developers relied heavily on selling unbuilt future properties in order to fund the construction of current projects. This drove up property prices, which caused the central government to step in to discourage the issuing of property loans. This in turn reduced the number of units developers like Evergrande were able to sell, and affected their ability to generate enough revenue to pay their bills.
Authorities also began investigating Evergrande in 2022, where Chairman Hui Ka Yan was reportedly arrested. Allegedly due to illegal activity.
However, it is unclear how this latest ruling against China Evergrande will affect the company. The semi-separated nature of Hong Kong means that the judicial system is not always binding on the mainland. While there has been an agreement for courts between the two jurisdictions to respect each other’s rulings, a liquidation order would require the Hong Kong authorities to seize assets located in mainland China. In theory, this could happen but would be met with substantial red tape.
Evergrande is not the only Chinese developer facing debt issues. Smaller developers Sunac China, Jiayuan and Kaisa were also dragged into court by angry creditors since China’s property woes began.
