China Evergrande receives unexpected relief from liquidation

China Evergrande, once China’s largest real estate developer, has successfully avoided a long-expected liquidation.

A Hong Kong bankruptcy judge on Monday gave Evergrande another two months to reach an agreement with foreign investors who lost money when the company defaulted on hundreds of billions of dollars in debt two years ago. The judge scheduled another court session for January 29.

It was an unexpected development in a bankruptcy lawsuit filed 18 months ago by an investor who was so desperate for his money that he sued to break up Evergrande. Judge Linda Chan said in October that she was prepared to order Evergrande’s liquidation if it could not reach an agreement with its creditors on how to divide some of the company’s remaining assets.

But on Monday, Judge Chan gave Evergrande another chance after a lawyer for the investor who originally sued the company, known in court as the petitioner, said his client was no longer actively seeking liquidation, sparking confusion among lawyers and other creditor advisers who had gathered. In court.

“We thought the company would be liquidated today,” said Neil McDonald, a partner at law firm Kirkland & Ellis, which advises creditors. “The petitioner changed his position and did not press for the liquidation of the company, which came as a surprise to us,” Mr McDonald said, adding that he was informed of the change 15 minutes before the hearing on Monday. He and another advisor to the creditors indicated that if they had been given more notice, they would have opposed the postponement.

The split between the creditors was another inconclusive turn in a long, still unresolved case that would ultimately determine how Evergrande would meet its ultimate fate.

For two decades, Evergrande has been held up as an example of success in China. It was among the country’s most powerful companies, and at the heart of the real estate industry that was crucial to the country’s economic growth. But years of overexpansion have led to it defaulting on more than $300 billion in overdue bills.

Evergrande’s default caused China’s housing market to slide into crisis, making many Chinese families feel desperate about the real estate market, the main store of wealth for most families. As Evergrande’s financial situation has gradually deteriorated in recent months, investors have come to expect little in return.

Since then, Evergrande has been operating in limbo – unable to meet its obligations but never officially terminated. Many questions remain for the hundreds of thousands of Evergrande homebuyers still owed their unfinished properties, for the many workers who built and sold its apartments but were not compensated, and for the Chinese banks and investors who gave it money in the expectation that they would be forced to do so. It is paid.

Of all the people owed to Evergrande, the foreign creditors fighting the company in court have been the most vocal. But they deserve the tiniest piece of what would be the biggest breakup of any Chinese company in history.

Behind the scenes, Chinese authorities and regulators, striving to stabilize the broader real estate sector, will have the final say in what happens to Evergrande.

Evergrande worked with external creditors this summer on a repayment plan, but scuttled the deal in September when authorities arrested the company’s founder and chairman, Hui Ka Yan. Evergrande said at the time that the deal was no longer possible due to new regulations that prevented it from issuing shares or selling bonds it would need to finance the restructuring deal.

In court Monday, Evergrande’s lawyer described his proposed plan to get around those rules. Judge Chan interrupted to warn him that the Chinese government must be involved in the company’s plans to ensure that such a deal would be possible. “I would have thought that the most reliable source would be to have a direct discussion with the relevant authorities,” Judge Chan said.

By Monday, most people involved thought this time would be the last hearing. When Judge Chan adjourned an earlier hearing on October 30, she said it was “very likely” this would be the company’s final reprieve.

However, liquidation is still possible, despite the recent postponement. If creditors are not satisfied with the new restructuring plan, which many appeared to be on Monday, they could press their case on January 29 to break up Evergrande.

Any liquidation of Evergrande would be messy and could take years. Evergrande has a complex business structure. It has three companies listed outside China’s jurisdiction on the Hong Kong Stock Exchange, including its holding company. It also has thousands of subsidiaries in China and more than 1,000 real estate projects – assets that are likely out of reach for investors in Hong Kong.