November 30, 2023

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The court gives Evergrande one last chance to approve the debt deal

The court gives Evergrande one last chance to approve the debt deal
  • Written by Nick Marsh
  • Business correspondent in Asia

Image source, Getty Images

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The closing hearing, which was scheduled for Monday, was postponed to December 4.

A Hong Kong High Court judge has given crisis-hit Chinese property giant Evergrande a final chance to reach a new deal on its huge debts or face liquidation.

The closing hearing, which was scheduled for Monday, was postponed to December 4.

Judge Linda Chan said it would be the last hearing before a decision is made.

Evergrande is the world’s most indebted property developer with liabilities totaling more than $325bn (£268.4bn).

She defaulted on her debt two years ago and has been working on a new payment plan since then.

Judge Chan said Evergrande must come forward with a “concrete” proposal or the company would likely be wound up. She added that the liquidator will still be able to negotiate with creditors.

Evergrande did not immediately respond to the BBC’s request for comment.

The case was originally filed by Top Shine Global, an investor in Evergrande’s Fangchebao unit, in June 2022.

It said Evergrande did not honor the agreement to repurchase shares the investor had purchased in the company.

Evergrande’s plans to rework its agreements with creditors were dealt a blow last month when it confirmed that its founder Hui Ka Yan and one of its key subsidiaries were under investigation for suspected criminal activities.

The company also said it had been barred by Chinese regulators from issuing new dollar bonds, which was a key part of its plan to restructure its debt.

It also canceled a scheduled creditor vote on the restructuring plan, which was scheduled to take place late last month.

Most of Evergrande’s debt is owed to people inside China, many of whom are private citizens whose homes have not been finished.

When the company defaulted on its massive debt in 2021, it sent shockwaves through global financial markets where the real estate sector contributes to nearly a quarter of China’s economy.

Several other major real estate companies in the country have faltered over the past year, and many are struggling to find the funds needed to complete development projects.

Evergrande now has five weeks to reach a payment plan agreed upon by its creditors, something it has failed to do in the past two years.

Until now, the company’s survival has been largely due to the fact that most of the money it owes goes to lenders in China, who have limited legal recourse to recover their money.

In contrast, creditors outside mainland China have the right to file lawsuits against the company. This is what Top Shine did and this could lead to a liquidation order being issued by the court.

However, liquidation will not resolve the issue cleanly. Analysts say this will greatly complicate the situation.

“Even if external creditors manage to liquidate Evergrande, the prospects for recovery are still uncertain for them,” said Evelyn Dhanubrata, Asia managing editor at REDD Intelligence.

“Most of Evergrande’s assets are in China. So the company will have to juggle multiple local stakeholders, including homebuyers, banks and government officials,” she added.

Aside from deciding which lenders will get priority in the liquidation, there is also the question of who will finish the homes that more than a million Chinese are still waiting for delivery from Evergrande.

Dhanubrata said it was difficult to envision a scenario in which foreign creditors would get their money before Chinese homeowners did. Ultimately, any solution will likely require significant cooperation with the Chinese government.

“It will likely be difficult to pursue internal enforcement against Evergrande assets without approval from the relevant authorities,” she said.

Additional reporting by Peter Hoskins

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