As of: January 29, 2024, 10:55 a.m
By: Lars-Eric Nievelstein
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No real estate company in the world has accumulated as much debt as Evergrande.
Now a Chinese judge has ordered Evergrande to dissolve.
A tremor is going through the real estate market.
Hong Kong - Today, Monday, the Chinese Evergrande Group's years of infirmity came to an interim finale.
A Hong Kong judge has ordered the dissolution of the heavily indebted company.
An insolvency administrator should take over and check to what extent he can monetize the group's assets and pay out the creditors.
Name of the group |
Evergrande Real Estate Group |
|---|---|
Total debt |
$300 billion |
Number of Chinese banks affected |
Almost 4,000 |
Share of the real estate sector in China's economic output |
20 percent |
Judge orders Evergrande to be dissolved
The story of Evergrande's decline began in 2021.
At that time, the company said it had found six executives who had illegally redeemed the group's investment products early.
Just a few weeks ago it was said that China's real estate industry was facing an "uncertain year" because the Evergrande Group had developed into a true titan on the market.
The company's fall was correspondingly severe.
China Evergrande had to answer in court because of unpaid loans.
In total, the company owes creditors a record sum of more than $300 billion.
Even after a year and a half of hearings, the judge stated that the company was not able to make a proposal for restructuring.
The South China Morning Post quoted Chan: "I think it's time for the court to say enough is enough."
Do different rules apply in mainland China?
Evergrande shares plummeted on the stock market following the decision.
Although Evergrande certainly has the opportunity to appeal against the decision, the winding-up process would still begin until the decision is made.
First, the search for an insolvency administrator begins.
Just as in the case of the ailing Signa Group, it would try to pay the creditors, which would require, for example, a sale of the company's assets.
A Hong Kong judge orders the dissolution of the heavily indebted real estate giant Evergrande.
© IMAGO / NurPhoto
However, there is a legal subtlety that currently leaves it unclear to what extent the ruling is valid in mainland China.
The creditors went to court in Hong Kong because Evergrande is listed on the stock exchange there, while a large part of the group's assets are located in Guangzhou in southern China.
This could make it more difficult for an administrator to make personnel decisions at the official company headquarters.
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Evergrande’s case – implications for China
With a share of 20 percent, the real estate sector is one of the largest drivers of the Chinese economy.
Evergrande's crisis therefore affects them even more.
“In China Evergrande, the current real estate crisis is manifesting itself in a concentrated form,” the German press agency (dpa) quotes chief economist Wang Dan from Hang Seng Bank in China.
This also affects more than 4,000 Chinese banks.
Many unrepaid debts are somehow tied to real estate or local government bonds.
A collapsing real estate market inevitably means more pressure on the banks.
Many companies would now have liquidity problems because their real estate investments would lose value.
Can Evergrande trigger a new global crisis?
For Europe and the Western markets, experts have already stated that this crisis will be limited in 2021.
At that time there were certainly warnings of a “Lehman moment” from China, but three factors are clearly different.
Firstly, Evergrande's debt total of $300 billion is half that of Lehman Bank, and secondly, Evergrande is largely indebted domestically.
And third, as the
Tagesschau
put it, Lehman was “part of the DNA of the global financial system.”
Because of the extreme interconnectedness of the global financial markets, there was hardly an institution that was not affected.
Weaker Chinese economic performance would have other effects, for example demand for foreign products could fall.
“The effects could be even greater and stronger if China’s difficult economic situation is spread to other countries,” ZDF quoted Dr.
Wan-Hsin Liu from the Kiel Institute for the World Economy.
With material from dpa