A short-term respite? The Hong Kong justice system extended on Monday until the end of January the deadline for the heavily indebted Chinese real estate giant Evergrande to present its restructuring plan and try to avoid a liquidation that poses a risk to the Chinese economy.
Hong Kong High Court Judge Linda Chan adjourned the case until Jan. 29, saying Evergrande’s lawyer needed to speak more directly “with the relevant authorities to confirm” that the restructuring proposal was feasible. Evergrande, once China’s largest real estate developer, defaulted in 2021 and reported liabilities of more than $300 billion, becoming a symbol of China’s years-long real estate crisis and raising fears of an economic slowdown. deeper.
Debt versus equity
Last year, creditors filed a liquidation petition in Hong Kong against China Evergrande Group, which began the liquidation process, but the case dragged on as the parties tried to negotiate an out-of-court settlement. Linda Chan had given Evergrande an initial deadline of December 4 to present a concrete restructuring plan, otherwise she would appoint independent liquidators from accounting firm KPMG.
He delayed this deadline on Monday and asked for more concrete details. “What does the company plan to do in the coming weeks? At the moment, we only have a general idea,” he told Evergrande’s lawyers, stressing that “transparency is also essential.” In March, the real estate giant offered creditors the possibility of exchanging their debt for new securities issued by the company and shares of two subsidiaries, Evergrande Property Services Group and Evergrande New Energy Vehicle Group.
But negotiations stalled in September when the company’s president, Xu Jiayin, was “subjected to coercive measures” by Chinese authorities over suspected irregularities. The company said the same month it could not issue new bonds because its Chinese subsidiary, Hengda Real Estate Group, was under investigation.
A restructuring plan to be perfected
On Monday, Evergrande lawyer José-Antonio Maurellet indicated that due to “difficulties” linked to “certain events,” the group was not currently in a position to issue bonds or shares. Evergrande’s restructuring plan is “similar to that envisioned in the initial plan,” but will be “more refined,” he said.
Lawyers for petitioning creditor Top Shine Global said they had been “instructed by their client not to present any argument” against the postponement. On the contrary, Neil McDonald, partner at the law firm Kirkland & Ellis LLP, quoted by the Bloomberg agency, stated that the group of creditors he represents “strongly rejected” the latest proposal presented by Evergrande to the court.
Evergrande shares rose more than 13% on Monday on the Hong Kong Stock Exchange. Evergrande, which defaulted for the first time in 2021 and filed for bankruptcy in the United States this year, is closely followed by the company’s weight in the Chinese economy.
$328 billion
China’s real estate sector has accounted for up to about a quarter of the country’s GDP. But President Xi Jinping said the debt accumulated by Evergrande and other real estate companies represented an unacceptable risk to China’s financial system and overall economic health. Authorities have therefore gradually restricted developers’ access to credit since 2020, causing a wave of defaults.
At the end of June, Evergrande estimated it had debts of $328 billion, slightly less than Hong Kong’s GDP before the pandemic. Hong Kong has a common law legal system, distinct from that of mainland China, favored by certain foreign creditors as a venue for the liquidation of delinquent Chinese manufacturers. It is not yet clear whether a liquidation order issued by a Hong Kong court will be enforceable on the mainland.
Source: BFM TV
