'World's Most Deeply Indebted Developer' Ordered to Liquidate

A court in Hong Kong on Monday ordered China Evergrande to be liquidated, in a decision that marks a milestone in China's efforts to resolve a property industry crisis that has rattled financial markets and dragged the entire economy down, per the AP. Here's what happened and what it means, looking ahead:

• What is China Evergrande? Evergrande, founded in the mid-1990s by Hui Ka Yan (also known as Xu Jiayin), is the world's most deeply indebted developer, with more than $300 billion in liabilities and $240 billion in assets. The company has operations sprawling other industries, including electric vehicles and property services, with about 90% of its assets on the Chinese mainland.
• Why is Evergrande in trouble? Hong Kong High Court Judge Linda Chan ordered the company to be liquidated because it's insolvent and unable to pay its debts. The ruling came 19 months after creditors petitioned the court for help, and after last-minute talks on a restructuring plan failed. Evergrande is the best known of scores of developers that have defaulted on debts after Chinese regulators cracked down on excessive borrowing in the property industry in 2020. Unable to obtain financing, their vast obligations to creditors and customers became unsustainable. Hui has been detained in China since late September, adding to the company's woes.

• Why does Evergrande's predicament matter? The real estate sector accounts for more than a quarter of all business activity in China, and the debt crisis has hamstrung the economy, squeezing all sorts of other industries, including construction, materials, home furnishings, and others. Falling housing prices have unnerved Chinese homeowners, leaving them worse off and pinching their pennies. A drop in land sales to developers is starving local governments of tax and other revenues, causing their debt levels to rise. None of these developments are likely to reassure jittery investors. The health of China's huge economy, the world's second-largest, has an outsize impact on global financial markets and on demand for energy and manufactured goods.
• What happens next? Much depends on the extent that courts and other authorities on the Communist-ruled Chinese mainland respect the Hong Kong court's decision. The court is appointing liquidators who will be in charge of selling off Evergrande's assets to repay the money it owes. As is typical, only a fraction of the value of the debt is likely to be recovered. In the meantime, Evergrande has said it's focused on delivering apartments that it has promised to thousands of buyers but hasn't yet delivered.

(More liquidation stories.)