(Hong Kong) A Hong Kong court on Monday gave heavily indebted Chinese real estate giant Evergrande until the end of January to submit its restructuring plans and try to avoid liquidation.
Hong Kong High Court Judge Linda Chan adjourned the case to January 29 and said Evergrande’s lawyer should speak more directly to “confirm with the relevant authorities” that the restructuring proposal is feasible.
Evergrande, once China’s biggest real estate developer, defaulted in 2021 and reported more than $300 billion in liabilities, becoming a symbol of China’s years of real estate crisis and widely raising fears of an economic slowdown.
Last year, creditors filed a liquidation petition against China Evergrande Group in Hong Kong – which would have started the liquidation process – but the case dragged on as the parties tried to negotiate an out-of-court settlement.
Mme Chan said in October that Evergrande would be given a “final extension” until Dec. 4 to develop a concrete restructuring plan or appoint independent liquidators from accounting firm KPMG.
In March, the real estate giant offered lenders the option to exchange their debt for new securities issued by the company and for shares in two subsidiaries, Evergrande Property Services Group and Evergrande New Energy Vehicle Group.
“Monetization” of Affiliates
But talks stalled in September after Chinese authorities “subjected the company’s chairman, Xu Jiayin, to coercive measures” on suspicion of breaking the law.
The company said the same month it could not issue new bonds because its Chinese subsidiary Hengda Real Estate Group was under investigation.
At a court hearing in October, Evergrande’s lawyers said the restructuring would focus on “monetizing” the two Hong Kong-listed subsidiaries. Evergrande estimated its debt at the end of June was $328 billion.
China’s construction and real estate sector, which once accounted for a quarter of its GDP, has boomed for decades with rising demand.
But Beijing sees the debt accumulated by its major players as an unacceptable risk to China’s economy and overall financial health.
Authorities gradually restricted developers’ access to credit from 2020 and a wave of defaults followed.
Hong Kong has a different “common law” legal system than mainland China, which some foreign creditors prefer to liquidate defaulting Chinese manufacturers.
It remains unclear whether the liquidation order issued by the Hong Kong court will be enforced on the mainland.