Amidst the ongoing financial turmoil surrounding China Evergrande, a significant development unfolds as a key offshore bondholder group plans to support a petition for the liquidation of the embattled developer. This move, set to be presented in a Hong Kong court on Monday, increases the likelihood of a swift liquidation order. Let’s delve into the potential consequences and the intricate details of Evergrande’s potential liquidation.
Liquidation Process Unveiled:
1. Appointment of Liquidators:
If a liquidation order is issued, a provisional liquidator and an official liquidator will be appointed to take control. Their primary responsibility will be to prepare for the sale of Evergrande’s assets to repay its substantial debts.
2. Debt Restructuring Possibilities:
The liquidators could propose a new debt restructuring plan to offshore creditors, holding a staggering $23 billion in Evergrande’s debt. This could be contingent on the assessment of the company’s assets or the emergence of a white knight investor. Additionally, investigations into the company’s affairs may occur, potentially leading to legal actions against directors.
3. Appeal and Trading Status:
Evergrande retains the option to appeal a liquidation order, but the liquidation process would continue during the appeal. The status of Evergrande shares in the stock market remains uncertain, as listing rules require a business structure with sufficient operations and asset values.
Debt Recovery and Main Challenges:
1. Projected Recovery Rates:
Initial estimates suggested a recovery rate of 3.4%, as stated in a Deloitte analysis during a July court hearing. However, recent developments, including investigations into Evergrande’s flagship unit and its chairman, have led creditors to expect a recovery rate of less than 3%.
2. Asset Disposition Challenges:
Most of Evergrande’s assets have been sold or seized by creditors. The remaining units listed in Hong Kong face challenges as their combined market capitalization has significantly declined. Finding buyers for these units may prove difficult for the liquidator.
3. Control of Subsidiaries:
Post-liquidation, the liquidator may take control of Evergrande’s subsidiaries across mainland China. However, challenges may arise in changing legal representatives, especially considering Guangzhou, Evergrande’s base, lacks mutual recognition of liquidation orders with Hong Kong.
Impact on China’s Property Market:
While Evergrande’s potential liquidation, with $240 billion in assets, would undoubtedly send shockwaves through already fragile capital markets, experts emphasize that it won’t serve as a blueprint for other struggling developers. The complexity of Evergrande’s situation involves numerous authorities and political considerations.
Discover the nuances of Evergrande’s potential liquidation and its implications for China’s property market. Gain insights into the intricate details and challenges. For a deeper understanding, explore this insightful link to access valuable content on this crucial subject.
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Credit: Clare Jim and Scott Murdoch