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China Evergrande could finally meet its end in Hong Kong court

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China Evergrande, once China’s most prolific real estate developer, may soon experience its largest and most complicated corporate dissolution.

In a Hong Kong court on Monday, a bankruptcy judge could force Evergrande to liquidate and repay creditors owed tens of billions of dollars.

It would mark the end of two years of limbo for investors who lent money to Hong Kong’s Evergrande and attempted to trade a portion of the indebted corporate giant which defaulted in early December 2021.

A liquidation of Evergrande was once unimaginable. For two decades, this country was a model of China’s adherence to capitalism. It was one of China’s most successful companies and was at the heart of the real estate sector, which was responsible for a third of the country’s economic growth. But years of overexpansion left it financially insecure, and when it defaulted it had more than $300 billion in overdue bills.

Evergrande’s default plunged China’s real estate market into crisis, plunging other developers into difficulties and leaving many Chinese households discouraged about housing, the main store of wealth for most families. As Evergrande’s financial situation has gradually deteriorated in recent months, investors no longer expect much in return.

Many questions would remain unanswered after the Hong Kong court’s ruling — for the hundreds of thousands of buyers who paid in advance and are still owed their homes, for the many workers who built and sold its apartments and who were not paid, and for the Chinese. the banks and investors who lent him money.

In Hong Kong, Evergrande’s lawyers and a group of its creditors have been arguing for more than a year over how to settle the billions of dollars in debt the company owes them. They are expected to gather for the seventh time before Justice Linda Chan to make their final appeal in a small, stuffy room on the 12th floor of the High Court in Hong Kong’s central business district.

Justice Chan signaled that this time could be the last. At a hearing on October 30, a lawyer for the creditor who first filed the lawsuit expressed exasperation at the lack of progress, telling Ms Chan: “Enough is enough.” While Ms Chan adjourned court, she said it was “very likely” the last reprieve for the company.

There is a small chance that Evergrande could live to see another day. Last-minute negotiations could lead Evergrande to present a new restructuring agreement or a concrete plan for a new agreement on Monday. If the creditors agree, the hearing could once again be postponed.

A group of creditors issued a statement in support of Evergrande’s main land company, Hengda, on Friday and said they opposed any form of bankruptcy of the company. None of the Chinese players with a financial stake in Evergrande, from customers to suppliers, would benefit, the group said, from what it called a “multi-year, value-destroying bankruptcy process.”

The group acknowledged that China’s real estate sector and economy were struggling, but added that it appreciated the “tremendous efforts of the Chinese government” and the company’s management to “resuscitate the company and the sector to the benefit of all stakeholders.

The Chinese real estate market has been in a downward spiral for several years. Although officials have tried to stem the decline in sales with measures such as easing home-buying requirements and lowering interest rates, their efforts have not made much difference.

Despite the gloomy housing outlook, the company had been working with foreign creditors this summer on a repayment plan, but it suddenly upped the deal in September when Evergrande founder and chairman Hui Ka Yan, was arrested by the authorities.

A liquidation, which would be supervised by a specialized firm appointed by the judge, would be complicated and could take years. Evergrande has a tangled business structure. There are three companies listed outside Chinese jurisdiction on the Hong Kong Stock Exchange, including its holding company. It also has thousands of subsidiaries in China and more than 1,000 real estate projects, assets that would likely be out of reach for investors in Hong Kong.

Ultimately, a liquidation would be a litmus test for how the Chinese Communist Party plans to deal with foreign creditors of real estate companies. Under a mutual agreement reached in 2021 between Hong Kong and Beijing, a mainland Chinese court could recognize the liquidator to allow creditors to take control of Evergrande’s assets on the mainland.

“This will be the biggest test yet of whether the continent’s courts are prepared to grant recognition under the Cross Border Protocol,” said Jonathan Leitch, restructuring partner at Hogan Lovells.

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nytimes

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