A Hong Kong court on Monday ordered Evergrande to be wound up after more than two years since defaulting on its debts, marking another grim milestone for Hui Ka Yan, once Asia’s richest person.
After more than two years since defaulting on its debts, Hui Ka Yan’s China Evergrande Group was ordered to liquidate on Monday by a Hong Kong court. But the ruling will open up another costly and multi-year legal process as offshore creditors prepare to battle for access to the Chinese property developer’s assets. And the fate of its founder and chairman, once Asia’s richest person, will not be decided soon, as authorities in Beijing might want to make an example out of him further down the road.
The Monday decision by Judge Linda Chan to wind up the Hong Kong-listed Evergrande came after repeated delays in the company’s negotiations to restructure its international debt, which it first started to work on in late 2021 after defaulting on a dollar bond that year.
“The company said it will do one, two, three,” Chan said during Monday’s hearing. “None of that has happened…one can characterize that as bad faith.” She added that other than the “scant” restructuring proposal, “there is nothing on the table.”
An Evergrande spokesperson didn’t respond to requests seeking comment. Trading was halted in the property developer, as well as its Hong Kong-listed new energy vehicle and property service units, following the court’s decision.
The liquidation petition was first filed in June 2022 by Top Shine, an investor in its online sales unit Fangchebao, which accused Evergrande of not honoring share repurchase agreements. Although creditors initially preferred restructuring, they appeared to be losing patience as well.
“There has been a history of last-minute engagement which has gone nowhere,” says Fergus Saurin, a Hong Kong-based partner at law firm Kirkland & Ellis, who represents a key group of Evergrande creditors. “And in the circumstances, the company only has itself to blame for being wound up.”
A few hours after the liquidation order, Chan appointed Alvarez & Marsal as the liquidator to seize Evergrande’s assets and repay its debt holders. Alvarez & Marsal is also expected to look into Hui’s stake in Evergrande, which he founded in 1996 in Guangzhou. Hui owns about 60% of Evergrande, which now only has a market cap of HK$2.1 billion ($270 million) after plunging 21% today before being halted from trading.
But analysts say the key challenge is whether international creditors can gain access to Evergrande’s onshore assets, as any offshore asset they can potentially seize is far from enough.
Although liquidators can apply for control of Evergrande’s assets in mainland China—which has a different judiciary system from the special administrative region of Hong Kong—under an existing agreement between the city and the tech hub of Shenzhen, authorities probably won’t say yes, notes Brock Silvers, a Hong Kong-based chief investment officer at Kaiyuan Capital. “Those onshore assets will be crucial to any eventual resolution of Evergrande’s significant onshore obligations,” he says. “A [Shenzhen] court is highly unlikely to approve a politically charged decision to grant effective control over onshore assets to offshore claimants.”
The company, which has become a poster child of China’s real estate crisis after a debt-fueled expansion fully blew up in 2021, is yet to finish many of its pre-sold apartment complexes across China. It has repeatedly vowed to address this issue, which has been tied to social instability as homebuyers have taken to the streets amid stalled construction works.
And Evergrande’s international bondholders rank behind all onshore bondholders and creditors in terms of seniority, says Nicholas Chen, a Singapore-based analyst at research firm CreditSights. Offshore bondholders will get almost nothing back in the event of a liquidation, he says.
After more than two years since defaulting on its debts, Hui Ka Yan’s China Evergrande Group was ordered to liquidate on Monday by a Hong Kong court. But the ruling will open up another costly and multi-year legal process as offshore creditors prepare to battle for access to the Chinese property developer’s assets. And the fate of its founder and chairman, once Asia’s richest person, will not be decided soon, as authorities in Beijing might want to make an example out of him further down the road.
The Monday decision by Judge Linda Chan to wind up the Hong Kong-listed Evergrande came after repeated delays in the company’s negotiations to restructure its international debt, which it first started to work on in late 2021 after defaulting on a dollar bond that year.
“The company said it will do one, two, three,” Chan said during Monday’s hearing. “None of that has happened…one can characterize that as bad faith.” She added that other than the “scant” restructuring proposal, “there is nothing on the table.”
An Evergrande spokesperson didn’t respond to requests seeking comment. Trading was halted in the property developer, as well as its Hong Kong-listed new energy vehicle and property service units, following the court’s decision.
The liquidation petition was first filed in June 2022 by Top Shine, an investor in its online sales unit Fangchebao, which accused Evergrande of not honoring share repurchase agreements. Although creditors initially preferred restructuring, they appeared to be losing patience as well.
“There has been a history of last-minute engagement which has gone nowhere,” says Fergus Saurin, a Hong Kong-based partner at law firm Kirkland & Ellis, who represents a key group of Evergrande creditors. “And in the circumstances, the company only has itself to blame for being wound up.”
A few hours after the liquidation order, Chan appointed Alvarez & Marsal as the liquidator to seize Evergrande’s assets and repay its debt holders. Alvarez & Marsal is also expected to look into Hui’s stake in Evergrande, which he founded in 1996 in Guangzhou. Hui owns about 60% of Evergrande, which now only has a market cap of HK$2.1 billion ($270 million) after plunging 21% today before being halted from trading.
But analysts say the key challenge is whether international creditors can gain access to Evergrande’s onshore assets, as any offshore asset they can potentially seize is far from enough.
Although liquidators can apply for control of Evergrande’s assets in mainland China—which has a different judiciary system from the special administrative region of Hong Kong—under an existing agreement between the city and the tech hub of Shenzhen, authorities probably won’t say yes, notes Brock Silvers, a Hong Kong-based chief investment officer at Kaiyuan Capital. “Those onshore assets will be crucial to any eventual resolution of Evergrande’s significant onshore obligations,” he says. “A [Shenzhen] court is highly unlikely to approve a politically charged decision to grant effective control over onshore assets to offshore claimants.”
The company, which has become a poster child of China’s real estate crisis after a debt-fueled expansion fully blew up in 2021, is yet to finish many of its pre-sold apartment complexes across China. It has repeatedly vowed to address this issue, which has been tied to social instability as homebuyers have taken to the streets amid stalled construction works.
And Evergrande’s international bondholders rank behind all onshore bondholders and creditors in terms of seniority, says Nicholas Chen, a Singapore-based analyst at research firm CreditSights. Offshore bondholders will get almost nothing back in the event of a liquidation, he says.
Meanwhile, the fate of Hui himself hangs in the balance. Once Asia’s richest man with a peak net worth of $45.3 billion, the disgraced entrepreneur has seen his fortune shrink more than 90% to $3.1 billion. That figure is almost entirely based on Evergrande dividend payouts acquired over the years, and isn’t expected to be directly affected by the liquidation order as the court’s legal reach doesn’t cover his personal affairs. The former mogul, however, has been placed under investigation for unspecified crimes in September.
The company hasn’t given any explanation about the nature of Hui’s suspected crimes or his whereabouts. Speculation has risen that authorities are unhappy with the slow progress of delivering the pre-sold homes, as well as repaying households that have invested in the property developer’s wealth management products.
With about $5.5 billion of investment products sold, Evergrande’s wealth management unit has said it would use the proceeds to fund projects such as making electric cars. After years of overdue payments, authorities last year also detained staff at the unit, including reportedly Hui’s younger son Peter Xu.
And they might seek Hui’s personal fortune if officials conclude that he obtained it illegally, says Shen Meng, a Beijing-based managing director at boutique investment bank Chanson & Co. A complete downfall of Evergrande might mark another landmark event in China’s beleaguered real estate sector, which is beginning to receive doses of support as Beijing now wants to put a floor under it and reinvigorate economic growth.
“With a landmark event, authorities might announce that they have achieved the goal of macro-managing the property sector,” says Shen. “And then they will be able to make adjustments.”
This article was first published on forbes.com and all figures are in USD.
