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Updated January 26th, 2024 at 10:33 IST

China Evergrande bondholders seek liquidation amid China real estate turmoil

Evergrande's potential liquidation poses risks to China's property markets amid its colossal financial imbalance.

Reported by: Business Desk
China real estate
China real estate | Image:Shutterstock
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China real estate: China Evergrande is set to endorse a liquidation plea against the beleaguered developer during a Hong Kong court session on Monday, according to two undisclosed sources. This bondholder group, holding over $2 billion in offshore notes backed by Evergrande, might boost the likelihood of an immediate liquidation order from the court, legal experts suggest. 

If the court rules for liquidation, it could have profound ramifications on China's already delicate capital and property markets, given Evergrande's colossal $300 billion liabilities and $240 billion assets. The ad hoc bondholder consortium, including hedge funds, informed the court of its intent to support the liquidation petition this week. This shift in stance comes after the group had previously aligned with Evergrande against the liquidation petition in early December.

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China's property predicament

Financial adviser Moelis & Co and legal adviser Kirkland & Ellis, representing the bondholder group, did not immediately respond to requests for comments. Evergrande and Moelis & Co also refrained from commenting on the matter. Evergrande, facing a severe debt crisis, defaulted on offshore debt in late 2021, symbolising broader challenges in China's property sector. The developer had been engaged in a $23 billion debt restructuring plan with the ad hoc group for almost two years. However, the plan faced setbacks in late September when Evergrande's founder, Hui Ka Yan, came under investigation for suspected crimes.

Despite siding with Evergrande against the liquidation petition, the ad hoc bondholder group has now shifted its position, potentially paving the way for the court to order liquidation. The developer, aiming to avoid immediate liquidation, proposed a last-minute debt restructuring before the December hearing. However, advisers to the bondholder group opposed Evergrande's revised terms. They warned that the developer could face liquidation in January if a mutually accepted restructuring plan was not presented. As of now, Evergrande has not submitted any documents to the court ahead of the Monday hearing.

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Top Shine allegations

The liquidation petition was initially filed in June 2022 by Top Shine, an investor in Evergrande unit Fangchebao. Top Shine accused Evergrande of failing to honour an agreement to repurchase shares in the subsidiary. The winding-up proceedings have seen multiple adjournments, with Evergrande contending that Top Shine represents only a fraction of its total offshore debt. Hong Kong High Court Justice Linda Chan has indicated that the December hearing would be decisive if a "concrete" restructuring plan was not presented. Despite another adjournment, Top Shine's opposition could contribute to the court's decision on liquidating Evergrande.

Notably, Top Shine, registered in Samoa, underwent a change in ownership, with the former owner, Lin Ho Man, revealing that he sold his debt holdings in Evergrande. The new owner is reportedly exploring various options for the liquidation petition, including giving Evergrande more time to present a revised restructuring proposal.

(With Reuters Inputs)

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Published January 26th, 2024 at 10:32 IST

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