Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
A Hong Kong judge has delayed a decision on Evergrande’s liquidation, an unexpected move that gives the Chinese property developer until next month to come up with a restructuring plan that satisfies its creditors.
Judge Linda Chan said on Monday that the proceedings would be adjourned until January 29 after a lawyer for Top Shine Global, an offshore creditor that brought a winding-up petition against the Chinese developer, said it would not oppose such a move.
Lawyers for Evergrande, the world’s most indebted property developer, said in court the company was considering a deal that included handing “certificates” to creditors. The certificates would be “neither a share nor a bond but a right to distribution based on certain assets”, said the company’s lawyer.
“We are very surprised by the developments,” said Neil McDonald, a restructuring lawyer at Kirkland & Ellis who represents a group of offshore creditors, outside the court after the hearing.
He said the creditor group had “firmly rejected” the proposal that Evergrande outlined, adding that he had expected the company to be wound up on Monday.
Evergrande shares jumped as much as 13 per cent on Monday, though they still trade 99 per cent below their 2017 peak.
The developer’s woes highlight the wider cash crunch in the country’s property sector, which made up roughly a quarter of China’s economic activity before it was engulfed by crisis. Evergrande had more than $300bn in liabilities when it defaulted in 2021.
A previous restructuring plan was derailed in September when the company said it could not issue the “new notes” required under the proposal because its mainland business was being investigated by Chinese authorities over alleged breaching of disclosure rules.
Judge Chan said “crucial details” of the new plan were missing and suggested Evergrande should engage in “direct discussion with relevant authorities” to make sure the new plan was “in fact doable”. Evergrande’s lawyer responded: “We will try our best.”
The certificates could allow creditors to be repaid when some of the company’s assets are sold, which could be a “possible solution” to its inability to issue notes, said the company’s lawyer. He added that Evergrande would “refine” its proposal to creditors.
A resolution has been delayed several times since the case began in June 2022. During the previous hearing in October, Judge Chan said Evergrande would be granted “one last opportunity” to formulate a concrete restructuring proposal or a liquidation order would be “very likely” at the December 4 hearing.
The adjournment gives Evergrande more time to avoid liquidation, which could leave international creditors with little or even no return.
“It is hard to see the offshore creditors achieving any meaningful recovery if the company is placed into liquidation,” said James Wood, a Hong Kong barrister who specialises in insolvency cases but is not involved in the Evergrande case.
Top Shine Global filed the winding-up petition last year, alleging that Evergrande had failed to honour HK$863mn (US$110mn) worth of claims.