Hong Kong court orders liquidation of China Evergrande
Just as China was attempting to stabilise its fractured property sector, a Hong Kong court has dealt a blow by ordering the troubled developer, China Evergrande, to be wound up.
The order, issued on Monday, came after the court concluded that the developer was unable to devise a restructuring plan satisfactory to international creditors, despite months of negotiations.
This news resulted in a 21% decline in China Evergrande's shares, plummeting to 16 UK cents, prompting trading to be halted less than 20 minutes after the exchange opened. The Hang Seng Index, on the other hand, rose by 0.9% in response to the news, while mainland exchanges weakened.
Evergrande, the second-largest Chinese developer, is incorporated in the Cayman Islands, a British Overseas Territory, and headquartered in the Houhai Financial Center in Nanshan District, Shenzhen, Guangdong Province.
The company carries a debt of over $US300 billion and has been engaged in prolonged negotiations with creditors in an effort to reach a resolution.
In early December, Judge Linda Chan postponed the case until January 29, as reported by AFP. Back in late October, she had set December 4 as the deadline before appointing independent liquidators from the accounting firm KPMG.
Media reports on Monday suggested uncertainty about whether a Hong Kong liquidation order would be enforced in China by banks and the government.
Last week, the Chinese government openly expressed support for the sector.
“The financial industry has an unshirkable responsibility and must provide strong support,” stated Xiao Yuanqi, deputy director of China’s National Financial Regulatory Administration, at a media conference in Beijing the previous Thursday.
He emphasised that the government believed China's financial institutions should offer robust support to the beleaguered real estate sector and avoid "blindly withdrawing" financing from projects facing difficulties.
These strong remarks followed a $US141 billion reduction in reserve ratios for banks, which will take effect the following Monday.
“We all recognise that the real estate industry chain is extensive and involves a wide range of sectors. It has a significant impact on the national economy and is closely tied to people’s lives,” he added.
Now the question arises: Will President Xi Jinping's government permit the liquidation of Evergrande to occur in China, or will banks be instructed to finance the troubled developer?
Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.