The world’s most indebted real estate developer is in liquidation.
Ailing Chinese giant Evergrande has been ordered into liquidation by a Hong Kong court, a move that could send shockwaves through the country’s property market and the economy as a whole.
The ruling, handed down yesterday by Hong Kong High Court Justice Linda Chan, comes just over two years after Evergrande officially defaulted on a massive £260 billion debt, triggering a cash flow crisis in the Chinese real estate sector.
The debacle left huge housing projects across the country unfinished and triggered measures by the Beijing government to try to avoid a domino effect in the industry.
Since then, several competitors have followed the company into default.
Colossal debts: a residential complex built by the giant Proerty Evergrande located in Huaian, in eastern China.
Hong Kong courts have issued liquidation orders for at least three small businesses since 2021.
But things took a turn for the worse yesterday when Chan pulled the plug on Evergrande’s efforts to stay afloat after lengthy talks with creditors to hammer out a restructuring plan failed.
“Enough is enough,” the judge said. “I consider it appropriate for the court to make a winding up order against the company, and I order so.”
The move sent Evergrande shares down nearly 21 percent before trading on the Hong Kong Stock Exchange halted.
The company’s shares have lost more than 99% of their value over the past five years and have a market value of just £213 million, down from a peak of £42 billion in 2017 and completely overshadowed by its enormous debt.
Chinese authorities are also involved, with Evergrande’s billionaire chairman Hui Ka Yan arrested by police in September and placed under observation on suspicion of “illegal crimes”.
The Hong Kong courts’ ruling is expected to be tested on whether it will be implemented in mainland China, where most of Evergrande’s projects and assets are based.
It is not yet clear whether mainland courts will accept the ruling. Chinese media reported that Evergrande boss Shawn Siu said the company’s structure was “unaffected” by the order and that it would do “everything possible” to continue carrying out its plans. construction in the country.
But its woes could have far-reaching effects on the Chinese and global economies, as the construction sector consumes large quantities of raw materials such as steel and cement.
Russ Mould, investment director at broker AJ Bell, said: “The big question now is what impact it could have on the financial system if investors large and small get back just a fraction of their money and that aspiring homeowners don’t get the home they’re looking for. » I bought while the buildings remain unfinished.
He added that the liquidation was also likely to make China an “even higher risk” for foreign investors because Evergrande’s fate had created “so much uncertainty” about potential knock-on effects.
Banking giant HSBC is among those to have suffered from its exposure to a struggling sector, reporting in October that it had suffered a £410 million loss from the recession.
China’s property market troubles come as the country tries to deal with a broader economic slowdown that threatens to derail its ambitions to supplant the United States as the world’s largest economy.
A fragile recovery from the pandemic, high levels of youth unemployment, a falling population and slowing demand for goods due to the compressed cost of living have all combined to put increased pressure on the communist government in power and its leader Xi Jinping.
They previously pledged to restore the country to greatness by 2049 as part of a “rejuvenation” plan that includes boosting economic prosperity.