Once The Biggest Developer In China, Evergrande Is Ordered To Liquidate

Key Takeaways:

– Evergrande, once China’s biggest property developer, has been ordered to liquidate by a Hong Kong judge.
– The company ran out of cash and defaulted in 2021 after years of overborrowing.
– Investors bought up the firm’s discounted I.O.U.s, hoping for a bailout from the Chinese government.
– However, the Hong Kong bankruptcy judge ordered Evergrande to cease operations, citing its inability to present a viable path forward.
– Evergrande will now have to dismantle its massive business operations and is expected to struggle to pay back its more than $300 billion in debt.
– The company’s stock price fell more than 20 percent following the court’s decision, and the ruling is expected to impact China’s property sector and foreign investment.

inman:

The developer was once considered too big to fail, but it over-borrowed and was hurt by China’s weakening property market.

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Evergrande, once China’s biggest property developer, was ordered by a judge in Hong Kong to liquidate, spelling the end for what was once a titan in property development.

Following years of overborrowing, the company officially ran out of cash and defaulted in 2021, leading to a feeding frenzy from investors around the world who bought up the firm’s discounted I.O.U.s, hedging their bets that the Chinese government would bail them out.

Those bets were revealed to have been misguided, as Hong Kong bankruptcy judge Linda Chan issued a decision ordering Evergrande to cease operations, citing its inability to present a viable path forward to the court over the course of one and a half years, according to a report in The New York Times.

“I think it would be a situation where the court would say, enough is enough,” Chan said.

Evergrande will now be forced to dismantle its massive business operations, which include projects in hundreds of cities in China and non-real estate interests such as an electric car company. It has spent the past two years unable to pay its debts or function effectively.

Evergrande, once considered too big to fail, fell victim to China’s teetering property market, which saw sales of new homes fall 6 percent throughout 2023. The company racked up a massive amount of debt during a property boom for the country but found itself unable to pay back its more than $300 billion in debt as property sales fell and the company took money for apartments that had not been finished, leaving thousands of homebuyers without the homes they paid for.

The company’s stock price fell more than 20 percent following the court’s decision. Reverberations of the ruling are expected to rattle through China’s already limping property sector and could make it less attractive for foreign investors, depending on the outcome for Evergrande’s creditors, who are expected to struggle to get their money back.

Hong Kong has appointed the restructuring firm Alvarez & Marsal to handle Evergrande’s liquidation, but much of the company’s assets are in mainland China, where companies appointed by Hong Kong have limited jurisdiction.

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Property Chomp's Take:

Evergrande, once China's biggest property developer, has been ordered to liquidate by a judge in Hong Kong. This marks the end of what was once a titan in property development. The company's downfall can be attributed to years of overborrowing and the weakening property market in China.

The company officially ran out of cash and defaulted in 2021. This led to a frenzy among investors around the world who bought up the firm's discounted I.O.U.s, hoping that the Chinese government would bail them out. However, those bets turned out to be misguided.

Hong Kong bankruptcy judge Linda Chan issued a decision ordering Evergrande to cease operations. The judge cited the company's inability to present a viable path forward to the court over the course of one and a half years. This decision means that Evergrande will now have to dismantle its massive business operations, including projects in hundreds of cities in China and non-real estate interests such as an electric car company.

Evergrande's downfall can be attributed to China's teetering property market. Sales of new homes fell 6 percent throughout 2023, and the company found itself unable to pay back its massive debt of over $300 billion. The company had taken money for apartments that had not been finished, leaving thousands of homebuyers without the homes they paid for.

The ruling to liquidate Evergrande has had significant consequences. The company's stock price fell more than 20 percent following the court's decision. This ruling is expected to have ripple effects throughout China's already struggling property sector and could make it less attractive for foreign investors, depending on the outcome for Evergrande's creditors.

Hong Kong has appointed the restructuring firm Alvarez & Marsal to handle Evergrande's liquidation, but the company's assets are mostly in mainland China. This poses a challenge as the appointed firms from Hong Kong have limited jurisdiction in mainland China.

The liquidation of Evergrande serves as a cautionary tale for property developers and investors. It highlights the risks of overborrowing and relying too heavily on a single market. The downfall of a once-mighty developer like Evergrande should serve as a reminder to exercise caution and prudence in the real estate industry.

In conclusion, Evergrande's order to liquidate marks the end of an era for the once-biggest property developer in China. The company's over-borrowing and the weakening property market in China led to its downfall. The ruling is expected to have significant implications for China's property sector and may deter foreign investors. It serves as a reminder of the importance of careful financial management and diversification in the real estate industry.

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