The Hong Kong High Court’s liquidation order for China Evergrande Group marked the downfall of the company, which symbolized the end of China’s real estate boom. For investors around the world, the fate of debt collection will have far greater implications than just China Evergrande.
Hong Kong High Court orders liquidation for China’s Evergrande – Assets mainly in mainland China, will it be practically difficult to recover?
The key question is whether the Hong Kong High Court’s ruling will be followed in mainland China, which has a separate judicial system. Although China Evergrande’s stocks and dollar-denominated bonds are traded in Hong Kong, the bulk of its $242 billion worth of assets is in mainland China.
There is no precedent for a company of China Evergrande’s size to be liquidated in a Hong Kong court, and since the company has multiple divisions, the process is expected to be full of twists and turns. However, an unfavorable outcome for foreign investors could not only exacerbate deep pessimism about China but also undermine Hong Kong’s role as a vital financing hub for Chinese companies.
“Investors around the world are watching closely to see whether mainland Chinese courts will accept the Hong Kong court’s ruling,” said Li Kesheng, co-head of the Asia-Pacific region at the Alternative Investment Management Association. “This could set an important precedent for whether Hong Kong judicial decisions are actually enforced in mainland China,” he said.
WATCH: China Evergrande Group, the world’s most-indebted property developer, received a liquidation order from a Hong Kong court. Lorretta Chen reports.
Source: Bloomberg
This uncertainty underscores the growing concern among investors that the Chinese Communist Party’s interests will always be prioritized. The sudden clampdown by authorities on private industries, from real estate to tech, has taken a toll on stock valuations, along with concerns about an economic slowdown.
Recognition of Hong Kong bankruptcy proceedings in China is limited, and Chinese courts may appoint a receiver under their own jurisdiction.
“The liquidation order is unlikely to have an immediate impact on China Evergrande’s operations or assets on the mainland,” said Brock Silvers, managing director at private equity firm Caiyuan Capital. . “Liquidators may have jurisdiction over offshore assets, but they will not have that authority on the mainland,” he says.
In addition, Chinese officials have made clear in the past that they would prioritize completing work in progress and paying contractors over the interests of creditors. China Evergrande seems to agree with this.
China Evergrande’s ups and downs also illustrate the central role that Hong Kong has played in the development of China’s private enterprises. Chairman Xu Jiayin founded the company in Guangzhou in 1996, but China Evergrande’s impressive growth has been driven by its deep capital market and global investment ability, until stricter regulations on real estate developers led to financial deterioration. Hong Kong became the gateway to money.
Original title:Evergrande Liquidation Is a Big Test for International Creditors(excerpt)