- China Evergrande, the planet’s most indebted real estate developer, will liquidate after failing to restructure the US$300 billion it owes to banks and bondholders
- The news follows multiple years of missed payments and executive mismanagement
- The Ishares MSCI China Index is sitting on a 2.23 per cent loss as of 11:42 am ET
China Evergrande, the planet’s most indebted real estate developer, will liquidate after failing to restructure the US$300 billion it owes to banks and bondholders.
The decision, delivered by a Hong Kong court, applies only to Evergrande’s Hong-Kong listed China Evergrande business unit, with the mainland and international units remaining operational, and adds to the dozens of developers that have gone under since 2020 during the Communist Party’s ongoing crackdown to control its economy’s surging debt.
Court documents released Monday show that Evergrande owes US$25.4 billion to foreign creditors and holds total assets of only US$240 billion. About 90 per cent of the company’s assets are in mainland China.
Evergrande stock quickly lost 21 per cent on the news before being suspended from trading. The Ishares MSCI China Index is sitting on a 2.23 per cent loss as of 11:42 am ET.
It remains an open question whether a mainland court will support the Hong Kong court’s decision, given Hong Kong’s separate legal system, though a pathway for this reciprocity does exist.
A spiraling company with an uncertain future
This is far from the first time that Evergrande’s woes have been a matter of public attention, with the company halting certain operations because of overdue payments as early as August 2021, and failing to find an auditor for its financial results in March 2022. Evergrande’s chairman, Hui Ka Yan, was also detained in September 2023 on suspicions of illegal activity.
Now, hundreds of paid homes remain to be delivered on, with the life savings of families across China hanging in the balance.
The flailing Chinese economy
Chinese economic growth is expected to struggle over the near term because of excessive state influence in the business sector, rampant youth unemployment and an aging population putting a damper on demand.
While real estate had been the main driver of China’s economic boom, an overreliance on debt has left major cities full of empty offices and apartments, and pushed corporate, government and household debt to more than 300 per cent of annual economic output.
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