As China’s most troubled and debt-laden real estate developer is ordered into liquidation, the impact of Evergrande’s bankruptcy on investors, debtors and hundreds of thousands of homebuyers who have made down payments on homes. It remains unclear.
Chinese real estate developer Evergrande’s assets were worth just $275 million as of Monday, down 99% from its peak in 2017. According to the company’s latest financial report, the company owes more than $300 billion from various creditors.
In a scathing judgment handed down by Hong Kong’s High Court on Monday, Judge Linda Chan said: “Enough is enough.”
“There is no dispute that the company is in deep bankruptcy and unable to pay its debts,” Chan said. I have writtenas she ordered the company to liquidate its assets.
But enforcing that order will be the next challenge, with the line of creditors likely to continue for months.
Evergrande can still appeal Monday’s ruling. More importantly, over 90% of his assets are include There are more than 1,300 housing projects in 280 cities in mainland China, a separate jurisdiction from Hong Kong, and it is not at all clear whether Judge Chan’s order will be enforced.
“Good luck,” says Anne Stevenson Yang, founder of J Capital Research. She said that when another Chinese real estate developer, Kaisa, defaulted on its debts in 2015, Chinese local governments took control of Kaisa Developments, changed the name, and in some cases, Kaisa staff moved to real estate. I recalled that I was physically prohibited from accessing it.
This means foreign bondholders, including Top Shine Global, which has filed a liquidation petition against Evergrande, will be “left out to dry,” said economist George, an associate professor at London’s Soas University. Magnus says.
And the chances of relief are low. The Chinese government “certainly doesn’t want to prioritize covering the losses of foreign creditors over its own citizens,” Magnus said. “That’s never going to look good. So if anyone is going to pay the price, it’s going to be foreign bondholders.”
As Hong Kong and China’s stock markets plummet, a predictable commercial bankruptcy process has become a key pillar for foreign companies deciding whether to continue investing in China. The extent to which foreign investors can be confident that their investments in Chinese companies will be treated fairly will depend on what measures the Chinese government takes.
However, many analysts believe that the song’s mood music is already set.
“Companies are gradually and cautiously refraining from making future investment decisions in China… [Evergrande’s impact] It’s pretty neutral,” Magnus said.
The question now is whether the crisis at what was once the jewel of China’s real estate sector will reverberate throughout the broader financial system.
Analysts are warning against predictions of a “Lehman moment” in China, where the collapse of Lehman Brothers Bank in 2008 became a crisis for the U.S. economy. Experts at financial research firm China Beige Book said the Chinese government’s strict control over the entire financial system makes it “almost impossible for the virus to spread.”
On Sunday, Chinese state media report The government plans to merge three of the country’s largest debt management companies with China Investment Corp., a sovereign wealth fund, but analysts say the move means Beijing will take over the restructuring of financial institutions rather than bailing them out or paying them off. He points out that this is an example. to the creditor.
Evergrande can still challenge Judge Chan’s decision. According to the BBC, the company’s executive director said it was “disappointed” by the ruling, but said it would continue to operate in mainland China.
This will be important to many homebuyers who are making down payments on properties that Evergrande has stopped building. When Evergrande’s problems first surfaced in 2021, about 1.6 million homebuyers were left in limbo after the company took away their deposits without handing over their homes.
In a country where nearly three-quarters of household wealth is tied up in real estate, the future of Evergrande is a major concern for hundreds of thousands of ordinary Chinese whose nest eggs are about to disappear. right.
