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Evergrande's Liquidation Marks Critical Juncture in China's Property Debt Crisis
Ticker Tea
January 29, 2024
💬 STOCKS MENTIONED: $3333.HK
📝 SUMMARY: China Evergrande Group ($3333.HK), once a leading figure in the country's real estate sector, is facing liquidation following a Hong Kong court order, symbolizing a key turning point in China's extensive property debt crisis. The company, saddled with 2.39 trillion yuan ($333 billion) in liabilities, saw its shares plummet by 21% before trading was suspended, leaving its market value at merely HK$2.15 billion ($275 million).
The liquidation process puts the management of Evergrande in the hands of provisional liquidators, with a focus on resolving issues including control by founder and Chairman Hui Ka Yan. This step comes after the company's repeated failures in restructuring negotiations with creditors and following Hui's detainment by police on suspicion of criminal activities.
Credit analysts like Zerlina Zeng from Creditsights Singapore LLC have expressed skepticism about offshore creditors recovering substantial proceeds from the liquidation, given Evergrande's majority of assets located in mainland China. Most of the company’s dollar notes were trading at around 1.5 cents on the dollar, indicating severe losses for bondholders.
Despite the liquidation order, the Hong Kong High Court's Judge Linda Chan noted the possibility of Evergrande proposing a scheme of arrangement even after winding up. The company, which defaulted on a dollar bond in December 2021, has struggled with restructuring plans, scrapping creditor meetings and failing to meet proposed deadlines.
Evergrande's liquidation process is expected to be complex, especially since most of its projects are operated by local units in mainland China. The activities like housing delivery and construction work in China are likely to continue during the liquidation. The broader property market in China remains weak despite various measures introduced to stabilize falling prices and demand.
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