Evergrande shares plunged 20.9 per cent in Hong Kong before
the hearing. Trading was halted in the company and its listed subsidiaries,
China Evergrande New Energy Vehicle Group and Evergrande Property Services,
after the verdict.
The decision to liquidate the world’s most indebted
developer, with more than US$300 billion (S$402.4 billion) of total
liabilities, was made by Hong Kong High Court Justice Linda Chan, who noted
that Evergrande had been unable to offer a concrete restructuring plan despite
months of delays.
“It is time for the court to say enough is enough,” she
said.
Justice Chan will deliver her reasons for granting the
liquidation at 2.30pm Singapore time. It is expected that a provisional
liquidator will be appointed to oversee Evergrande ahead of a permanent
appointment.
Evergrande, which has US$240 billion of assets, sent a
struggling property sector into a tailspin when it defaulted on its debt in
2021 and the liquidation ruling will likely further jolt already fragile
Chinese capital and property markets.
Before Jan 29, at least three Chinese developers have been
ordered by a Hong Kong court to liquidate since the current debt crisis
unfolded in mid-2021.
Beijing is grappling with an underperforming economy, its
worst property market in nine years and a stock market wallowing near five-year
lows, so any fresh hit to markets could further undermine policymakers’ efforts
to rejuvenate growth.
“Evergrande’s liquidation is a sign that China is willing to
go to extreme ends to quell the property bubble,” said Mr Andrew Collier,
managing director of Orient Capital Research.
“This is good for the economy in the long term, but very
difficult in the short term.”
The liquidation process could be complicated, with potential
political considerations, given the many authorities involved.
But it is expected to have little impact on the company’s
operations, including home construction projects in the near term, as it could
take months or years for the offshore liquidator appointed by the creditors to
take control of subsidiaries across mainland China – a different jurisdiction
from Hong Kong.
Ahead of the Evergrande decision, China’s Supreme Court and
Hong Kong’s Department of Justice said they signed an arrangement on the
reciprocal recognition and enforcement of judgments in civil and commercial
cases effective immediately in both places.
Evergrande had been working on a US$23 billion debt revamp
plan with an ad hoc bond holder group for almost two years. Its original plan
was scuppered in late September when it said its billionaire founder Hui Ka Yan
was under investigation for suspected crimes.
The liquidation petition was first filed in June 2022 by Top
Shine, an investor in Evergrande unit Fangchebao, which said the developer had
failed to honour an agreement to repurchase shares it had bought in the
subsidiary.
The proceedings had been adjourned multiple times and
Justice Chan said previously that the December hearing would be the last before
a decision was made whether to liquidate Evergrande in the absence of a
“concrete” restructuring plan.