(Reuters) – A Hong Kong court on Monday ordered the liquidation of China Evergrande Group, a move likely to send ripples through China’s crumbling financial markets as policymakers scramble to contain the deepening crisis.
MARKET REACTION:
Trading in shares of China Evergrande, China Evergrande New Energy Vehicle Group, and Evergrande Property Services was halted. The benchmark Hang Seng Index was up 1.2%.
COMMENTARY:
DAMIEN BOEY, CHIEF MACRO STRATEGIST, BARRENJOEY, SYDNEY
“These issues are well known for some time. The companies that are in trouble are the ones we have known about, so I think the best thing that you can do as a policymaker with the stated policy intent is to make sure that you take control of these unwind processes and make them orderly. And I think that’s what they’re doing. And so if you can do that, then you can avoid more blow-ups and unforeseen issues in the property sector. And, you can avoid some of the collateral damage.
“So, I think we’re closer to the end of this wind-up cycle than the beginning, provided that policymakers do what the market actually wants them to do, which is obviously stimulate growth and support the property sector and it looks to me they’re doing that.”
RAYMOND CHENG, HEAD OF CHINA RESEARCH, CGS-CIMB SECURITIES, HONG KONG
“The liquidation order will be negative for Evergrande itself for sure, the assigned liquidator will offload the company assets as soon as possible, and the price may be very bad.
“It might affect sector sentiment in the short term, but Evergrande’s restructuring has its own specific problems. It is possible that other developers will be willing to compromise more in negotiations as they fear creditors will be applying for liquidation.”
GARY NG, SENIOR ECONOMIST, NATIXIS
“It is not an end but the beginning of the prolonged process of liquidation, which will make Evergrande’s daily operations even harder. As most of Evergrande’s assets are in mainland China, there are uncertainties about how the creditors can seize the assets and the repayment rank of offshore bondholders, and situation can be even worse for shareholders. Investors will be concerned about whether there will be a snowball effect on other developers as the queue to liquidation is long.”
ANDREW COLLIER, MANAGING DIRECTOR, ORIENT CAPITAL RESEARCH, HONG KONG
“Evergrande’s liquidation is a sign that China is willing to go to extreme ends to quell the property bubble. This is good for the economy in the long term, but very difficult in the short term.”
WONG KOK HOONG, HEAD OF EQUITY SALES TRADING, MAYBANK, SINGAPORE
“The Hang Seng Property index still trading marginally higher. Evergrande (has been) ongoing for some time now, think investors have moved past this.”
MATT SIMPSON, SENIOR MARKET ANALYST, CITY INDEX, BRISBANE
“I think the bigger surprise here is that it took so long for Evergrande to be liquidated. Clearing out the deadwood should be seen as a positive, but I doubt it will boost confidence in the property sector on this news alone.”
KEN CHEUNG, CHIEF ASIAN FX STRATEGIST, MIZUHO, HONG KONG
“The markets are still focused on the property sector downturn in China, so I think they will evaluate if this liquidation or the events (will) pose any impact on the progress to fix the property sector in China, and how the Chinese government will make any arrangement due to this kind of court case impact.”
KENNY NG, SECURITIES STRATEGIST, CHINA EVERBRIGHT SECURITIES INTERNATIONAL COMPANY, HONG KONG
“This may further impact the confidence of mainland creditors and increase the difficulty of Evergrande’s restructuring in mainland China. At the same time, this may also affect investors’ confidence in the mainland real estate industry and the willingness of mainland residents to purchase properties. This has the potential to have a dampening effect on the economy and the capital market.
“Whether offshore creditors can apply for the sale of Evergrande’s assets in mainland China will depend on whether the mainland courts recognise or enforce the winding-up order from Hong Kong. If recognised or enforced, offshore creditors have a chance to claim for the assets in the mainland. Otherwise, they can only apply for the liquidation of assets in Hong Kong.”
BACKGROUND
* Evergrande defaulted on offshore debt in late 2021, becoming a symbol of the debt crisis that has engulfed China’s property sector.
* The world’s most indebted developer has around $300 billion of liabilities and $240 billion of assets.
* The liquidation petition was first filed in June 2022 by Top Shine, an investor in Evergrande unit Fangchebao which said the developer had failed to honour an agreement to repurchase shares it had bought in the subsidiary.
* Evergrande had been working on a $23 billion debt revamp plan for two years.
* Its original plan was scuppered in late September when it said its billionaire founder Hui Ka Yan was under investigation for suspected crimes.
* An ad hoc bondholder group had been siding with the developer in opposing the liquidation petition until the last hearing in early December.
(Reporting by Reuters Asia bureaus, compiled and edited by Subhranshu Sahu)
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