2024-01-29 06:28:02
HONG KONG (AP) — A Hong Kong court has ordered China Evergrande, the world’s most indebted real estate developer, to liquidate its subsidiary in the territory following a failed attempt to restructure $300 billion owed to banks and bondholders. which fueled fears regarding growing debt in the Asian giant.
China Evergrande Group is the largest in a series of Chinese developers that have gone bankrupt since 2020 under pressure from authorities to rein in their debt, which the country’s ruling Communist Party sees as a threat to China’s lackluster economic growth.
But the campaign once morest excessive debt has plunged the sector into crisis and turned it into a drag on the economy, as dozens of other companies found themselves in trouble and their difficulties were echoed in financial systems inside and outside China.
Global financial markets had previously been rocked by fears that Evergrande might cause a global setback. But Chinese regulators said the risks might be contained. Just a few billion dollars of Evergrande’s debt was owed to foreign creditors.
Judge Linda Chan said it was appropriate for the court to order Evergrande to wind down its business given the company’s “lack of progress in presenting a viable restructuring proposal” as well as the firm’s insolvency.
It was unclear how the liquidation order would affect the Chinese financial system. Evergrande shares in Hong Kong fell nearly 21% on Monday morning before trading was suspended. But Hong Kong’s benchmark Hang Seng index gained 0.9% and other real estate developers rose.
Fergus Saurin, a lawyer representing a group of creditors, said Monday that he was not surprised by the outcome.
“The company has not collaborated with us. There have been a number of last-minute approaches that have gone nowhere,” she commented.
Evergrande CEO Shawn Siu told Chinese media 21Jingji that the firm felt “the utmost regret” over the liquidation order. He stressed that the order only affected the Hong Kong-listed division of China Evergrande.
The company’s two divisions are separate legal entities, he noted. The company on the Chinese mainland will continue to operate and deliver properties to buyers, he added.
Real estate fueled China’s economic boom, but builders ran into deep debt as they filled cities with apartment and office towers. That helped push total household, business and government debt to the equivalent of more than 300% of annual economic output, unusually high for a middle-income country.
The effects of the real estate crisis have also shaken China’s opaque banking industry, where some institutions offer financial services but operate outside of banking regulation, such as the Zhongzhi Enterprise Group. Zhongzhi, who lent a lot of money to developers, has declared insolvency.
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