Jan. 29 (UPI) — Chinese property giant Evergrande Group was placed into liquidation Monday by a court in Hong Kong after the company repeatedly failed to come up with a viable plan to restructure liabilities of at least $325 billion.
Judge Linda Chan called time on Evergrande saying “enough is enough” 18 months after Top Shine filed a winding up petition over Evergrande’s failure to honor a $110 million buyback agreement for shares Top Shine bought in its Fangchebao subsidiary.
China Evergrande shares crashed on the news, losing more than one-fifth of their value on the Hong Kong Stock Exchange before trading was suspended at the direction of the exchange less than an hour after the open.
Liquidators will now be appointed to sell off Evergrande’s assets to pay its creditors, but the reach of the ruling of a Hong Kong court remains to be seen with Evergrande executive director Shawn Siu vowing the company would continue to operate in mainland China.
The ruling came the same day as an MOU between Hong Kong and Beijing took effect agreeing to enforce rulings in civil cases by each other’s judicial authorities. However, Hong Kong sought to frame the agreement as protection against mainland judgments being automatically imposed on Hong Kong entities.
With China’s property market already in crisis, the government may exercise the same prerogative when it comes to such a key player in a sector that accounts for around a quarter of GDP.
The MOU specifically states that cross-border enforcement can be refused if legal proceedings are initiated in Hong Kong before a mainland court hears the case or the defendant is not given a reasonable opportunity to mount a defense.
Evergrande, which first defaulted in 2021, has been fighting to stave off insolvency with Chan granting it a final eight-week reprieve Dec. 4, saying she would issue the winding up order if it failed to come up with a restructuring plan in that time.
The firm’s problems have spiraled in recent months with offshore creditors demanding controlling stakes as part of the restructuring and the dentition by mainland authorities of top executives, including founder and chairman Hui Ka Yan who was placed under “residential surveillance” arrest in September.
In July, the group posted a combined $81.1 billion loss for 2021 and 2022, most of it from payments to lenders and suppliers, as it struggled to finish more than a thousand projects in 280 cities.
A month later, Evergrande filed for U.S. bankruptcy protection in a court in New York seeking recognition of restructuring negotiations in Hong Kong, the Cayman Islands and the British Virgin Islands.
Evergrande accumulated its debt mountain over a 15-year drive to become one of China’s biggest businesses.
Much of the money is owed to prospective homebuyers with down payments on apartments and houses that are half-built, or on which work has yet to start, as well as suppliers and sub-contractors.