Evergrande Disaster: Chinese Developer Gets A Respite Of Two Months

Evergrande was once the shining face of the economic miracle that was China. It was feted by the central authority and dubbed as one of the most powerful corporate entities, leading the real estate industry. It was at the center of China’s economic growth and had an almost invincible aura. However, overambitious zeal and overexpansion pushed it into the debt quagmire, and it is today at the center of a default on more than $300 billion of overdue bills.

The Evergrande default plunged one of the biggest housing market crises in China, and its ripple effect was felt in the world economy too. For the middle-class Chinese households, it was the main store of wealth and had invested in Evergrande ventures. With each passing day, the prospects of getting returns are getting bleaker.

However, two years after defaulting, the group faces its biggest test on Monday over a creditor’s request to wind up the company. The developer is tasked with convincing the judge that it has in place a viable debt restructuring plan. A failure could lead to the inevitable – liquidation, leading to further chaos and an erosion in investor confidence. The State is doing all it could within its means to save the company from liquidation. The liquidation of the company will seriously dent China’s image as a favored destination for investors.

China Evergrande Gets an Unexpected Reprieve From Liquidation

The company just got a lease of life, but just when a Hong Kong judge put on hold temporarily the liquidation. The judge has given the company an extension of two months to hammer out an amicable agreement with the foreign investors who have sunk a substantial amount of money and are the most affected when the company defaulted about two years ago. The judge set another court hearing for Jan. 29.

The latest development has surprised everyone after the lawsuit was initiated by one investor some 18 months ago. The judge had earlier in October warned that it would order a liquidation if an amicable agreement was not reached with the creditors, and the company’s remaining assets would be divided between the investors to pay off the debts.

Lance Jiang, a partner at law firm Ashurst LLP, which represents the creditors, said that if Evergrande is unable to put forth a viable restructuring plan, the Hong Kong court will issue the winding-up order. The court is also hearing a demand by offshore investors who want controlling equity stakes in the company and its subsidiaries. The investors hold $6 billion of the builder’s about $19 billion of offshore notes and want the debts to be swapped for controlling stakes.

Earlier, the beleaguered developer had offered 17.8% of the parent and 30% of each of the subsidiaries — Evergrande Property Services Group and China Evergrande New Energy Vehicle Group Ltd. It is not clear if Evergrande is ready for the latest proposals offered by the investors for the debt swap.

Evergrande, with total liabilities to the tune of $327 billion, was once the

child of the economic miracle in the Chinese real estate market. However, since December 2021, after its default, it has become a blot on the Chinese economy. The state is trying its best to alleviate the suffering by introducing a slew of measures to shore up the struggling real estate sector, but it has not benefited Evergrande, and it continues to slide into an economic mess. In September, the company had scrapped its creditor meeting, saying that it is again looking at its original restructuring proposal. The company’s Chairman is also under scrutiny for any wrongdoing and has been placed under police control.

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