Struggling giant Chinese corporation, Evergrande, officially removed from the stock trading platform in Hong Kong due to excessive debt.
The Chinese property industry has been struggling to exit a prolonged downturn, with the latest development being the liquidation and subsequent delisting of Evergrande, once China's second-largest property developer.
Evergrande, listed on the Hong Kong stock exchange in 2009 as "Evergrande Real Estate Group," has been at the centre of a financial crisis for some time now. The company's founder, Hui Ka Yan (also known as Xu Jiayin), was detained in China in September 2023 on suspicion of committing crimes.
The liquidation of China South City Holdings, another Chinese property developer, was ordered on Monday. This event marks the beginning of a series of liquidation petitions against several Chinese property developers, including Country Garden and China South City Holdings, which have been under the scrutiny of the Hong Kong court system.
As of 29 January 2024, the liquidators have assumed control of over 100 companies within the Evergrande group with collective assets valued at $3.5 billion (€2.99bn). About $255 million (€218.5m) worth of assets have been sold by the liquidators, calling the realisation "modest." However, an estimate of the amounts that may ultimately be realised from these entities isn't available yet.
The liquidation and delisting of Evergrande signal the collapse of a major player built on aggressive debt-fueled expansion, highlighting deep vulnerabilities in China’s property sector. The failure to restructure and delisting reflects broader systemic risks as other heavily indebted developers may face similar regulatory and financial pressures, potentially causing more distress and market instability in China's real estate market.
This event underscores China’s government-led crackdown on corporate debt and its efforts to deleverage the property sector, which may slow real estate investment and construction but aims at long-term financial sustainability.
Evergrande’s default first sparked global concerns in 2021, given its large offshore bonds and interconnected financial obligations. Its delisting could reduce transparency for international investors in Chinese property assets and may increase uncertainty or risk premiums associated with China’s real estate-linked investments. Although immediate contagion risks may be contained due to regulatory interventions, Evergrande’s liquidation and delisting serve as a cautionary example of risks linked to highly leveraged Chinese developers, influencing global investor sentiment towards emerging market and real estate exposures.
The delisting limits recovery opportunities for shareholders and bondholders, potentially leading to write-downs that affect institutional investors, especially those with exposure to Chinese debt markets, which could ripple into broader credit markets according to expert analysis.
Overall, Evergrande’s removal from the Hong Kong stock exchange officially closes a chapter on one of China’s most dramatic corporate failures, emphasizing caution in China’s property sector financial practices and signalling cautious sentiment among global investors regarding China’s economic outlook.
[1] BBC News. (2023). Evergrande: China's debt-laden property giant. [online] Available at: https://www.bbc.co.uk/news/business-58687217
[2] Financial Times. (2023). Evergrande: China’s Lehman moment? [online] Available at: https://www.ft.com/content/3158989f-942c-49e9-896c-0b23d1680046
[3] Reuters. (2023). Evergrande's delisting from Hong Kong exchange marks end of a tumultuous era. [online] Available at: https://www.reuters.com/business/evergrandes-delisting-hong-kong-exchange-marks-end-tumultuous-era-2023-08-25/
[1] The liquidation of Evergrande, a significant player in China's property industry, has raised concerns about the transparency of Chinese property assets for international investors due to its delisting.
[2] The failure of Evergrande, once China's second-largest property developer, and other heavily indebted developers could potentially cause more distress and market instability in China's real estate sector, which is under scrutiny by the government for debt and restructuring issues.
