Impending liquidation: China's Evergrande gets postponement until the end of January

Evergrande's Looming Liquidation: Delayed Until January's End

Judge Linda Chan questioned Evergrande's attorneys, "What's your game plan in the coming weeks? We're only scratching the surface so far." Transparency was crucial, she emphasized, "It's not solely about dissatisfied creditors in court."

The Chinese construction sector is grappling with a crisis, with Evergrande at its heart. In 2020, Chinese authorities clamped down on borrowing, triggered by skyrocketing debt in the industry. This led to payment defaults and canceled projects, particularly for Evergrande. In 2021, the company filed for insolvency proceedings, amassing a debt of over 300 billion euros.

Evergrande proposed debt-swaps for creditors in March, offering new securities and shares in two subsidiaries. However, in September, group CEO Xu Jiayin was arrested in China, sparking a plummet in share prices. Trading resumed at the beginning of October, but an investigation into another subsidiary only added to the uncertainty.

A creditor sought liquidation, but they agreed to a postponement on Monday. But other creditors didn't share this optimism.

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The delayed liquidation of Evergrande remains a persistent concern in China's construction sector. Evergrande's debt has grown to an estimated 300 billion euros, making it challenging to meet financial obligations. The postponement offers a temporary reprieve, but pressure to solve the financial quandary persists.

Creditors, including those who agreed to delay liquidation, might be hopeful about restructuring. However, others are less optimistic. If liquidation does occur, there's uncertainty regarding the enforcement of a Hong Kong court-issued order in China due to their distinct legal systems.

Evergrande's predicament continues to cast a shadow over China's construction sector, leaving investors and creditors eagerly anticipating signs of recovery or further setbacks.

Enrichment Insights:

1. Debt Restructuring:
2. Evergrande initially aimed to propose a debt restructuring plan but failed to deliver a preliminary plan by 31 July 2022.
3. The company continued working on restructuring principles for its offshore debt, aiming to finalize an offshore restructuring plan within 2022.
4. Asset Sales:
5. Evergrande attempted to sell off assets, including a 20% stake in Shengjing Bank, to raise capital. However, many asset sale deals, such as the proposed 51% stake sale in Evergrande Property Services to Hopson Development, fell through.
6. Bankruptcy Protection:
7. Evergrande filed for bankruptcy protection under Chapter 15 of the US bankruptcy code to protect its US assets while it worked on a restructuring deal.
8. Court Proceedings:
9. Evergrande faced various court hearings in Hong Kong, with a significant one on 29 January 2024, leading to a court order for liquidation due to the lack of a restructuring plan.
10. Regulatory Actions:
11. The China Securities Regulatory Commission (CSRC) fined Evergrande for overstating revenue in 2019 and 2020. Additionally, PwC's China unit was expected to be banned for six months due to its involvement in the Evergrande scandal.
12. Liquidity Crisis Management:
13. Despite the overall liquidity crisis, Evergrande's EV unit continued seeking strategic investors to stabilize operations and manage liquidity issues.