A Hong Kong court ordered China’s mega property developer Evergrande to wind up and liquidate its assets. After the ruling was delivered, trading in the company’s shares was suspended in Hong Kong.
The new ruling deals a strong blow to Evergrande which was declared to be in default in 2021 after it missed a crucial repayment deadline. The events also triggered China’s ongoing real estate market crisis. China placed Evergrande chairman Hui Ka Yan under surveillance and also seized his luxury homes in Hong Kong in November. Several other current and former executives were also detained in the last two years.
Who Are The Evergrande?
Evergrande was founded in 1996 in Guangzhou, southern China, and was known as the Hengda Group. Its founder Hui Ka Yan was once Asia’s richest person with his fortune estimated at $42.5 billion but his wealth has eroded as Guangzhou fell.
The group currently owns more than 1,300 projects in more than 280 cities across China. It also owns businesses like wealth management firms and also manufactures electric cars and drinks. It once held a large stake in one of the country’s biggest football teams, Guangzhou FC.
Why Is Evergrande in Trouble?
Evergrande grew in leaps and bounds and became one of China’s biggest companies. It borrowed more than $300 billion during its growing years.
In a bid to keep its business afloat after China drafted new rules to control the amount owed by big real estate developers Evergrande offered its properties at major discounts to keep money flowing in.
Evergrande is now struggling to meet the interest payments on its debts and lost 99% of their value in the past three years. It filed for bankruptcy in New York in August 2023 to protect its US assets while working on a multi-billion dollar deal with its lenders.
The Implications of Evergrande’s Possible Collapse
For prospective Chinese home-owners who have taken loans and paid the amount to the developers and are awaiting the handover of their homes, the prospect of Evergrande shutting down spells serious concerns. If Evergrande goes bust, they could potentially lose that money.
Construction and design firms and materials suppliers who did business with the real estate giant could also face major losses and could be forced into bankruptcy.
The Chinese economy could take a hit because if Evergrande collapses, banks and other lenders could be forced to reduce how much they lend leading to a credit crunch where businesses and companies struggle to borrow money at affordable rates.
This means very bad news and gloomy outlook for the world’s second largest economy and foreign investors could see China as a nation where they would rather not invest their money.
China’s property sector contributes roughly a quarter of its growth and experts told news agency BBC that Evergrande has already “collapsed” and is on “the brink of a forced liquidation”. They also fear that China could “slip into decades of economic stagnation” like Japan did in the 1980s.
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