Chinese Evergrande's $300B debt nightmare ends in liquidation

A Hong Kong court has ordered China Evergrande, the world's most heavily indebted real estate developer, to undergo liquidation following a failed effort to restructure $300 billion owed to banks and bondholders that fuelled fears about China's rising debt burden.

Judge Linda Chan said Monday it was appropriate for the court to order Evergrande to wind up its business given a "lack of progress on the part of the company putting forward a viable restructuring proposal" as well as Evergrande's insolvency.

China Evergrande Group is one of the biggest of a series of Chinese developers that have collapsed since 2020 under official pressure to rein in surging debt the ruling Communist Party views as a threat to China's slowing economic growth.

But a crackdown on excess borrowing has tipped the property industry into crisis, making it a drag on the economy, as scores of other developers ran into trouble, their predicaments rippling through financial systems in and outside China.

Global financial markets were rattled earlier by fears an Evergrande liquidation could cause global shockwaves. But Chinese regulators said risks could be contained. Only a few billion dollars of Evergrande's debt was owed to foreign creditors.

It's unclear how the liquidation order will affect China's financial system.

Fergus Saurin, a lawyer representing an ad hoc group of creditors, said Monday he was not surprised by the outcome.

"The company has failed to engage with us. There has been a history of last-minute engagement which has gone nowhere," he said.

Saurin said that his team worked in good faith during the negotiations. Evergrande "only has itself to blame for being wound up," he said.

The judge was expected to provide more reasons for the liquidation order during a separate court session Monday afternoon.

Evergrande CEO Shawn Siu told Chinese news outlet 21Jingji that the company feels "utmost regret" at the liquidation order. He emphasised that the order affects only the Hong Kong-listed China Evergrande unit.

Uncertain mainland impact

Evergrande first defaulted on its financial obligations in 2021, just over a year after Beijing clamped down on lending to property developers in an effort to cool a property bubble.

It's also unclear how the liquidation order will affect Evergrande's vast operations in the Chinese mainland. As a former British colony, Hong Kong operates under a legal system that is separate, though increasingly influenced by China's.


In some cases, mainland courts have recognised bankruptcy rulings in Hong Kong but analysts say Evergrande's is something of a test case.

Real estate drove China's economic boom, but developers borrowed heavily as they turned cities into forests of apartment and office towers. That has helped to push total corporate, government and household debt to the equivalent of more than 300% of annual economic output, unusually high for a middle-income country.

The fallout from the property crisis has also affected China's shadow banking industry — institutions that provide financial services similar to banks but operate outside of banking regulations, such as Zhongzhi Enterprise Group.