China will undergo a litmus test on Monday as the Evergrande Group has to avoid liquidation by appearing before Hong Kong courts. Eight weeks after the debt-encumbered property developer garnered a stunning reprieve in this long, drawn-out case, Evergrande has made little headway in securing an adjustment understanding with its creditors.
Any order to unwind Evergrande, which has some $327 billion in liabilities, has caused ripples through China’s financial system at a time when policymakers are trying hard to contain the stock market rout.
This action will also undermine confidence in the housing sector, which is stuck in a prolonged slump that threatens to weigh down on Asia’s second-largest economy.
New measures have recently been unveiled by China to prop up its distressed property sector such as compiling a list of builders that would qualify for funding support. However, there is almost no evidence to show that Evergrande has benefitted in any way whatsoever over two years after their default.
If there is no deal with the bondholders in time, Evergrande’s future may be dependent on the identity of the parties asking for a winding-up order from the court.
The December hearing was put off after the original petitioner, Top Shine Global Limited of Intershore Consult (Samoa) Ltd., did not want to insist on immediate liquidation. A committee of key bondholders plans to sign the petition, according to the January 24 Reuters report citing people familiar with the matter.
However, lawyers representing the ad hoc group of bondholders that said it has more than $6 billion in holdings of offshore notes issued by traditional builders for approximately 19 billion dollars told Bloomberg in a report to ‘likely’ step up if the original petitioner would drop out.
If the group changed its stance in favor of liquidation, which it had been against previously, it would only make things much harder for Evergrande to go to court. The poster child of China’s real estate debt crisis is trying to save the plan because a series of impediments have prevented its successful implementation in recent months.
