According to reports, a significant offshore bondholder coalition of China Evergrande (3333.HK) intends to participate in a petition seeking the liquidation of the developer at a Hong Kong court hearing scheduled for Monday. The bondholder group holds over $2 billion in offshore notes backed by Evergrande, and their endorsement of the winding-up petition heightens the likelihood of the court issuing an immediate liquidation order, as per legal experts in the industry.
Liquidation would wipe out the developer’s assets and halt its operations, a process that could take years to complete and would send shockwaves through already fragile Chinese capital markets. However, experts say it would not provide a blueprint for how other embattled developers might face liquidation in the future, given the massive size of Evergrande’s projects and debt and political considerations likely to be involved.
Evergrande is China’s most indebted property developer, owing lenders around $300 billion. The company’s fortunes turned sour in 2021 when the authorities investigated founder Hui Ka Yan, who used his wealth to buy up assets and prop up the firm, for unspecified “illegal activities.”
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Since then, Evergrande has been struggling to find financing to repay its debt, and its share prices have tumbled more than 85% this year. In a bid to stave off the threat of liquidation, the firm on Thursday proposed an out-of-court debt restructuring plan for its offshore creditors that involves them getting new shares in two of its Hong Kong-listed units, Evergrande Property Services and Evergrande New Energy Vehicle Group. Under the new proposal, creditors would own 17.8% of the company’s total shares and 30% stakes in each Hong Kong-listed unit.
But the creditors’ committee overseeing the dispute said it had “significant concerns” about the new plan, including that it would yield a lower recovery rate than an order to liquidate the company. Its lawyer also argued that it would be challenging to sell Evergrande’s mainland assets quickly, noting that the developer’s flagship unit and its subsidiaries in mainland China have a tangled business structure involving thousands of subsidiaries and projects.
The company said it sought to resolve the dispute through a voluntary winding-up proceeding rather than a court-supervised liquidation because an order to liquidate the company would lead to disruption of construction and delay the delivery of presold homes. It also cited an analysis by Deloitte at a Hong Kong court hearing in July, which estimated that creditors would receive 22.5% on average from a restructuring compared with 3.4% from a liquidation.
But in a sign that creditors were growing impatient with the long-running case, a judge at the High Court adjourned on Monday the hearing of the winding-up petition against Evergrande to Jan. 8. This could give the homebuilder more time to come up with a revised plan to pay its debts. A lawyer told Reuters that Samoa-registered Top Shine Global, which owns debt in Evergrande and has filed the winding-up petition, is seeking more time to explore options for the case.