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Evergrande liquidation forces ripple effect on China’s property sector

In late January, troubled real estate giant Evergrande was liquidated, unable to reach agreements with creditors over its staggering debts exceeding $300 billion, and casting a pall over China’s property sector

February 13, 2024 | Kevin Luarca

After a prolonged period of failed negotiations with creditors, beleaguered real estate giant Evergrande was ordered to liquidate by a Hong Kong court in late January.

The company’s inability to present a viable restructuring plan despite several court hearings and negotiations with offshore creditors led to the court’s action. Its debt load exceeding $300 billion against $245 billion worth of assets left it teetering on the brink of insolvency, prompting Justice Linda Chan to order the liquidation process.

The problem, however, is not only limited to Evergrande as many other property developers in China are also in debt. Despite assurances that the immediate impact on the struggling sector may be limited, the Evergrande precedent raises concerns about the future of other developers facing similar challenges.

The liquidation process itself is expected to be protracted and politically sensitive, involving the appointment of provisional and official liquidators tasked with selling off assets to repay outstanding debts. However, the complexity of navigating cross-jurisdictional issues between Hong Kong and mainland China adds another layer of friction to an already intricate process.

Amid fragile market sentiment, there are growing concerns about the implications for financing future projects, and the ability of developers to meet their obligations. With authorities in mainland China prioritising the completion of unfinished projects to mitigate disruptions in the property sector, the liquidation of Evergrande raises questions about the fate of ongoing developments and the broader economic repercussions.

A calculated risk

The decision to not rescue the once-largest real estate developer in China seems to be one that prioritises long-term stability and economic diversification. The real estate sector makes up about a quarter of China’s gross domestic product, with an estimated 70% of family assets...

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Keywords:Liquidation, Creditors, Debt, Insolvency, Court Order, Industry Implications, Developers, Financial Challenges, Asset Sale, Political Sensitivity, Cross-jurisdictional Issues, Market Sentiment, Financing, Economic Repercussions, Reserve Requirements, Central Bank Policies, Real Estate Developers, Homebuyers, Crisis Resolution