Developer China Evergrande ordered to liquidate. What will the impact be?
Global News
A Hong Kong court on Monday ordered China Evergrande to be liquidated, a move that could send shockwaves through already fragile Chinese capital and property markets.
A Hong Kong court on Monday ordered China Evergrande, the world’s most indebted developer, to be liquidated.
The move could send shockwaves through already fragile Chinese capital and property markets. Such a process could be complicated, with potential political considerations, given the many authorities involved.
Once a liquidation order is issued, a provisional liquidator and then an official liquidator will be appointed to take control and prepare to sell the developer’s assets to repay its debts.
The liquidators could propose a new debt restructuring plan to offshore creditors holding US$23 billion of debt in Evergrande if they determine the company had enough assets or if a white knight investor appeared. They would also investigate the company’s affairs and could refer any suspected misconduct by directors to Hong Kong prosecutors.
Evergrande could appeal a liquidation order, but the liquidation process would proceed pending appeal.
Shares in Evergrande and its listed subsidiaries were suspended from trading after the liquidation order. Listing rules require a company to demonstrate a business structure with sufficient operations and asset values.
Evergrande cited a Deloitte analysis during a Hong Kong court hearing in July that estimated a recovery rate of 3.4 per cent if the developer were liquidated.
However, after Evergrande said in September its flagship unit and its chairman Hui Ka Yan were being investigated by the authorities for unspecified crimes, creditors now expect a recovery rate of less than three per cent.
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