China Evergrande Group, one of the largest property developers in China, has been ordered to liquidate after failing to reach a restructuring agreement with its creditors. This marks a major corporate failure in the country.
The Hong Kong court’s decision at a winding-up hearing on Monday empowers the creditors to liquidate Evergrande’s businesses. As a result, trading in shares of China Evergrande, its new-energy-vehicle arm, and its property-services unit has been halted. China Evergrande shares are now down 21%, with a cumulative 90% loss over the past year. Similarly, China Evergrande New Energy Vehicle shares have dropped by 18%, while Evergrande Property Services shares have declined by 2.5%.
Evergrande has been burdened with approximately $300 billion in liabilities and has stopped making debt payments for over two years. The company has been engaged in negotiations for a debt restructuring plan with its creditors during this period. However, it had until Monday to present a viable plan for restructuring its defaulted debt.
According to Jefferies’ chief economist, Shujin Chen, the court order did not come as a surprise to equity investors. Hebe Chen, a market analyst at IG International, believes that the winding-up order represents the “next stage of China’s real-estate crisis.” She emphasizes that this development not only extinguishes any remaining hope but also creates shockwaves across various sectors, ultimately testing the resolve of Chinese policymakers to salvage their struggling economy and stock markets.