Evergrande's $300 Billion Liabilities: Chinese Court Orders Liquidation of World's Most Indebted Developer

A Hong Kong court ordered the liquidation of property giant China Evergrande Corp over $300 billion in liabilities.

The decision is expected to send giant ripples across the Asian nation's financial markets as policymakers scramble to contain a worsening crisis. The move to liquidate the most indebted developer in the world was made by Hong Kong Justice Linda Chan.

China Evergrande Group's Liquidation

(Photo : AFP)(STR/AFP via Getty Images)
China Evergrande Group, which is the world's most indebted developer, has been ordered by a Hong Kong court to liquidate over $300 billion in liabilities.

The judge noted that Evergrande had been unable to offer a concrete restructuring plan despite several months of delays. She said, "It is time for the court to say enough is enough" as she ordered the developer's liquidation.

Chan will later detail her reasons for ordering the liquidation of China Evergrande Group and it is expected that a provisional liquidator will be appointed to oversee the matter ahead of a permanent appointment.

The developer has $240 billion worth of assets and it sent a struggling property sector into a tailspin when it defaulted on its debt in 2021. Now, the Hong Kong court's liquidation ruling would likely further impact the already fragile Chinese capital and property markets, as per Reuters.

The situation comes as Beijing is currently grappling with an underperforming economy, its worst property market in nearly a decade, as well as a stock market experiencing near five-year lows. This means that any new negative impacts on the markets could further undermine policymakers' efforts to rejuvenate growth.

In a statement, Orient Capital Research managing director Andrew Collier said that Evergrande's liquidation is a sign that China is willing to go to extreme lengths to address the property bubble. He added that this is good for the economy in the long term but would be very difficult in the short term.

Before the hearing regarding its liquidation, Evergrande's shares were trading down as much as 20%. Then, trading was stopped in China Evergrande and its listed subsidiaries China Evergrande New Energy Vehicle Group and Evergrande Property Services following the judge's verdict.

Massive Financial Impacts

The ruling comes as China's property sector contributes roughly a quarter of the world's second-largest economy. Liquidation is the process where a company's assets are seized and then sold off. The money is then used to repay the company's outstanding debts, according to BBC.

However, whether or not this process is followed could depend on the Chinese government and the liquidation order does not necessarily mean that Evergrande will go bust and collapse. The recent case against the company was brought by one of its investors, Hong Kong-based Top Shine Global, in June 2022.

The latter said that Evergrande had not honored an agreement to buy back its shares. However, what they owe is a fraction of the developer's total debts. The vast majority of the money that it owes is to lenders in mainland China who have limited legal avenues to demand their money back.

Evergrande has been facing scrutiny as it, and others developed, overbuilt, and over promised. They took money for apartments that had not been built and left hundreds of thousands of home buyers waiting on their apartments, said the New York Times.