China Evergrande Granted 5 Weeks to Negotiate or Face Liquidation

Facts

• The Hong Kong High Court gave the crisis-hit China Evergrande Group a five-week reprieve to negotiate a deal with creditors or face liquidation, adjourning a liquidation hearing until Dec. 4. This comes after the property developer announced Monday that it has been working on a revised debt restructuring plan.¹
• Justice Linda Chan stated that this postponement, the fifth since offshore creditor Top Shine Global filed a winding-up petition against the company in July 2022, will be the last before a decision is made on the liquidation order.²
• This comes as lawyers representing Top Shine asked for an immediate order to close the firm. Simultaneously, an impromptu group of offshore creditors and another entity asked for a three-month delay in the hearing.³
• With over $300B in liabilities, Evergrande defaulted on its debt obligations two years ago. The arrest of its chairman Hui Ka Yan last month has cast further doubt over the real estate developer's ability to complete its debt restructuring proposal for offshore debts.⁴
• Additionally, the plan was affected as Chinese regulators banned the embattled company from issuing new US dollar bonds — a crucial part of its repayment proposal.⁵
• After falling as much as 23% earlier, Evergrande stock closed down about ten percent on Monday. The firm may seek to include shares from its subsidiaries, which collectively hold a market value of less than $1B, as key components in any debt-restructuring attempt.⁶

Sources: ¹Reuters, ²Nikkei Asia, ³South China Morning Post, ⁴Associated Press, ⁵BBC News and ⁶The Standard.

Narratives

• Anti-China narrative, as provided by CNBC. Doubts remain over the future of the highly indebted Chinese property developer as fears of its liquidation grow. With Hui's freedoms limited and a five-week window to strike a deal, the company may not survive. A failed Evergrande could spill over into other parts of the economy, leading to China's own Lehman-style crisis.
• Pro-China narrative, as provided by Global Times. While Western media keeps trying to promote Evergrande's case as if its potential collapse would negatively affect China's economic prospects, the fact is that such claims expose just how little they understand the Chinese development model. Because Evergrande has engendered this crisis by not following Beijing's directions, the group must shoulder its responsibility without a bailout.