Trading in Chinese real estate giant Evergrande shares was suspended on the Hong Kong stock exchange on Monday morning after the stock tumbled 21 percent, reportedly following a liquidation order from a Hong Kong court.
The rout in the company shares led to the company’s market value plunging to just $275 million (HK$2.15 billion).
China Evergrande Group received a liquidation order from a Hong Kong court, setting off what’s likely to be a daunting process to carve up one of the biggest victims of a years-long and nationwide property debt crisis, Bloomberg reported.
A wind-up will end up in the company being managed by provisional liquidators and addressing issues, including control by founder and Chairman Hui Ka Yan, Judge Linda Chan said in the city’s High Court on Monday morning.
The ruling cements the homebuilder – carrying $333 billion (2.39 trillion yuan) of liabilities – as the most prominent symbol of a real estate crisis that led to slower economic growth and a slew of defaults.
The liquidation will be a test case of the legal reach of Hong Kong courts in China, where most of Evergrande’s assets reside, with any new management also needing to navigate asset sales in an industry lacking liquidity and confidence.
“The market will pay close attention to what the liquidators can do after being appointed, especially whether they can achieve recognition from any of the three designated PRC courts” under a 2021 arrangement between China and Hong Kong, said Lance Jiang, restructuring partner at law firm Ashurst.
“The liquidators will have very limited powers of enforcement over onshore assets in mainland China if they cannot get such recognition,” Jiang said.
While Hong Kong’s courts have issued at least three wind-up orders for other Chinese developers since the crisis began in 2021, none comes close to Evergrande in complexity, asset size, and the number of stakeholders.
There are also a few signs that the liquidation of Jiayuan International Group and Yango Justice International Ltd., a unit of Yango Group Co., are moving forward much.
Hong Kong’s insolvency proceedings have limited recognition in China, whose courts may also appoint administrators in their own jurisdictions.
That leaves open the question of the claims of the $17 billion of Evergrande’s dollar bond holders covered in its proposed restructuring plan.
Most of Evergrande’s dollar notes traded at around 1.5 cents on the dollar as of last Friday, an indication that investors have little expectations on repayment, according to Bloomberg-compiled data.
The petition for liquidation was filed in June 2022 by Top Shine Global Limited of Intershore Consult (Samoa) Ltd., which was a strategic investor in the homebuilder’s online sales platform.
When Evergrande, which for a time in the last decade was the country’s largest builder by sales, first defaulted on a dollar bond in December 2021, it sent a shock wave through China’s markets with investors fearing contagion.
Beijing has sought to put a floor to the real estate crisis, rolling out measures to revive home sales and provide liquidity to debt-laden developers.
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