The Evergrande court case - what's next?
The Hong Kong high court ordered one of China’s largest property developers, China Evergrande Group, to liquidate, theoretically ending several years of uncertainty about the future of the developer. The court appointed a Hong Kong restructuring firm, Alvarez and Marsal, to handle the liquidation. The important questions are: 1) Will the mainland courts recognize the ruling; and 2) Will the central or local governments intervene due to the macroeconomic implications of a default of a national property developer?
The case was brought by a creditor, Top Shine Global, which claimed Evergrande had failed to honor HK$863 million of claims. Evergrande has more than $300 billion of offshore and onshore debt. The restructuring firm said the claims only applied to the parent company and not the operating subsidiaries. “Our priority is to see as much of the business retained, restructured or remain operational,” said Tiffany Wong, a managing director at the restructuring firm Alvarez & Marsal. She added that it would work with Evergrande’s executives to get creditors their money in a way that “minimizes disruption,” according to The Wall Street Journal.
However, the validity of the judgment was immediately refuted by Evergande’s chief executive Shawn Siu, who said that the company would “do everything possible” to ensure the continued delivery of property development projects in China. He said that the operational structure of its onshore and offshore subsidiaries was “unaffected” as the court order was based in Hong Kong. His statement does not bode well for the liquidation.
The bigger issue pertains to the political environment surrounding the liquidation ruling. There are a number of competing political groups that will determine the outcome of the Evergrande Case. Most important is the central government. Surprisingly, the central government under Xi Jinping has accelerated the development of the courts on lower level financial and economic disputes, which is important when it comes to a country the size of China. That explains why bankruptcy filings have grown over the past decade, despite the declining rule of law in other spheres.
However, Beijing does step in to handle larger, more politically sensitive issues, bypassing the courts. The question is—will Evergrande be one of those issues?
Now read on...
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