Black Monday for the struggling Chinese real estate sector. The Hong Kong High Court has ordered the liquidation of Evergrande, the most indebted developer in the world, at the proposal of its creditors, frustrated by the company's repeated failures to present a debt restructuring proposal. This amounts to no less than 302,000 million euros.
The judge, Linda Chan, has said enough, a year and a half after the start of the hearing, in light of the delaying maneuvers by Evergrande. Its founder, Xu Jiayin (Hui Ka Yan in Cantonese), who has been under house arrest since September, became the richest man in China in 2017, when the company's shares appreciated 400% in one year, to exceed fifty billion dollars. However, his shares plummeted last summer, when they returned to trading after a year and a half absence, after Evergrande could not pay the interest on its debt. Today, when its stock market value is practically testimonial compared to what it once was, the listing has been suspended again, after losing 21%.
The ruling can still be appealed, although this Monday the judge will appoint a provisional liquidator to begin restructuring the debt with creditors and take control of its Hong Kong and offshore books and assets. In any case, the idea dominates that Evergrande's assets in mainland China are outside the jurisdiction of the High Court of the autonomous city of Hong Kong, although there are validation mechanisms, through three competent courts, since 2021.
Evergrande has more than 1,200 projects in different stages of construction in mainland China and Beijing's priority is for the company to honor its commitment to delivery with clients, who normally buy homes off-plan. Between the summer of 2020 and 2021, at the beginning of the bad news for the group, it had leveraged itself to build a record of 1.2 million apartments.
It was then that Beijing decided to short-term the most indebted developers and Chinese President Xi Jinping even exclaimed that "housing is for living, not for speculation." The other side of the coin is that there are many ordinary Chinese who have invested all their savings in their house, whose value has decreased lately due to the dark clouds in the sector. These are not unrelated to the low birth rate, high youth unemployment, a smaller exodus from the countryside to the city and the general cooling of expectations, as a result of economic growth well below that experienced in the previous three decades.
The group has also decided to suspend the trading of the subsidiaries Evergrande New Energy Vehicle and Evergrande Property Services Group Limited.
The liquidation order comes after a series of judicial extensions, requested by Evergrande to present a debt restructuring plan that ultimately never arrived. It did not help that, since September, Evergrande has faced the impossibility of carrying out new debt issues, as a result of the investigation of one of its main subsidiaries, Hengda Real Estate.
The liquidation order of Evergrande in Hong Kong is added to the bankruptcy of another of the large Chinese developers, Country Garden, a few months ago. In any case, if in 2022 the built area sold in China was reduced by 30%, last year the reduction was 8%, so the authorities want to believe that the sector is headed towards a soft landing. This has been partly sought by Xi Jinping's government, which was scared when the weight of construction in the Chinese economy reached close to 30%. It is worth remembering that in Spain, last year, it fell below 5% of GDP.
In its desire to "rejuvenate China", the Communist Party seeks to direct investment towards sectors with greater added value. Thus, last year investment in Research and Development reached 2.6% GDP.
