China Evergrande Group’s shares plummeted by 20% and trading was halted due to a liquidation order

Despite concerns among experts that the Evergrande Group’s liquidation order might impact Chinese markets, Chinese stocks saw an increase. This rise is attributed to regulators announcing measures to support the country’s fragile stock markets.

 Trading for China Evergrande Group shares was suspended in Hong Kong on January 29 following a court-ordered liquidation. The property developer failed to restructure a repayment plan for its debts to banks and bondholders, raising fears about China’s growing debt burden.

The massive real estate company, burdened with a debt exceeding $300 billion that it defaulted on over two years ago, received a directive to liquidate. The Hong Kong High Court approved a creditor petition earlier in the day, despite the developer’s repeated requests for additional time to address its offshore debts.

While the company has the option to appeal the order, China Evergrande Group’s shares dropped by 20.87% before trading came to a halt.

On January 29, a Hong Kong court ordered the liquidation of the troubled Chinese property giant Evergrande, delivering another setback to the company symbolizing a property crisis causing concerns in the economy. The decision by High Court judge Linda Chan initiates a lengthy process involving liquidation of the developer’s assets and a change in management to address creditor concerns.

Trading for China Evergrande’s listed subsidiaries, China Evergrande New Energy Vehicle Group and Evergrande Property Services, was also halted following the court ruling. Despite concerns among experts about the liquidation order’s potential impact on Chinese markets, stocks rose as regulators unveiled measures to support the country’s shaky stock markets.

On January 28, China’s securities regulator announced a suspension of lending specific shares for short selling starting January 29. This move aimed to bolster the country’s declining stock markets. The specific shares in question are Restricted Stock, typically allocated to employees or specific investors with sales restrictions. The Hang Seng in Hong Kong increased by 0.9% to 16,102.02, and the Shanghai Composite index rose by 0.3% to 2,918.81.

China Evergrande Group is among the prominent Chinese developers that have collapsed since 2020 under official pressure to curb escalating debt, perceived by the ruling Communist Party as a threat to China’s slowing economic growth.

Evergrande, emblematic of China’s property sector debt crisis, defaulted on offshore debt in late 2021. As the world’s most indebted developer, it grapples with approximately $300 billion in liabilities against $240 billion in assets. The liquidation request, initiated by Top Shine in June 2022, stems from Evergrande’s failure to repurchase shares in its unit Fangchebao, violating an agreement. Evergrande’s $23 billion debt restructuring plan, underway for two years, faced setbacks in late September when its billionaire founder Hui Ka Yan came under investigation for suspected crimes. Despite an ad hoc bondholder group initially supporting the developer, their stance shifted during the last hearing in early December, endorsing the liquidation petition.

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Evergrande’s CEO, Siu Shawn, assured Chinese media that despite the liquidation order, the company is committed to delivering ongoing home-building projects. He emphasized that the order would not impact the functioning of Evergrande’s onshore and offshore units.

Nevertheless, Gary Ng, a senior economist at Natixis, expressed to Reuters that this is not the end but the beginning of a protracted liquidation process, making Evergrande’s daily operations more challenging.

He highlighted uncertainties about how creditors could seize assets, the repayment priority of offshore bondholders, and the potential worsened situation for shareholders, given that the majority of Evergrande’s assets are in mainland China.

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