Vandelay
Life is absurd. Lean into it.
China and the U.S. are in a race to see who can hit the bottom first I see.
evergrande
- Thread starter Pyrexcup
- Start date
China and the U.S. are in a race to see who can hit the bottom first I see.
Rembrandt
the artist
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China Evergrande seeks Chapter 15 protection in Manhattan bankruptcy court
China Evergrande , which is the world's most heavily indebted property developer and became the poster child for China's property crisis, on Thursday filed for protection from creditors in a U.S. bankruptcy court.
www.reuters.com
Welp
Evergrande shares plunge as much as 87% as trading resumes after 17 months
Evergrande shares tumbled as much as 87% on the Hong Kong Stock Exchange on Monday, to as low as 22 Hong Kong cents.
How does China fix the Evergrande mess?
The heavily indebted company has become the poster child of the country's flailing property sector.
www.bbc.com
How does China fix the Evergrande mess?
- Published
17 hours ago
- Published
SOURCE,EPA
Image caption,
Evergrande sold its headquarters in Shenzen in 2022
By Nick Marsh
Asia Business Correspondent
The Chinese property developer Evergrande owes more than $325bn (£269bn). That's more than Russia's entire national debt.
For two years, the company has been lurching from crisis to crisis, repeatedly failing to make payments on its multi-billion dollar loans.
Now its founder is under police surveillance, its shares are practically worthless and more than a million people in China are still waiting for their homes to be completed. On Monday, a court in Hong Kong could open a new chapter in the crisis by ordering the liquidation of some of Evergrande assets to pay back frustrated foreign investors.
Evergrande has become the poster child of China's flailing real estate sector. Its name, along with other major developers such as Country Garden, has become associated with unsustainable debt and impending financial disaster. Yet, Evergrande clings to survival.
In most Western countries, a failing privately-owned business such as Evergrande would either be liquidated or, in extreme cases, bailed out by the government. But things are done differently in China.
The world's second-largest economy is neither capitalist nor communist. It is unique, which makes it hard to predict Evergrande's fate.
But for now, Beijing has eased pressure on the firm in ways other countries cannot.
"It's alive only because the government hasn't let it die," says Leland Miller, chief executive of China Beige Book, an analytical platform that tracks the Chinese marketplace.
Zombie mode
Unlike Western countries, China is not a free market. When a problem arises, Mr Miller explains, the state can simply move tidal waves of money to patch it up.The majority of the money Evergrande owes is to creditors in China, including ordinary homeowners, suppliers and banks. And the government's control over them is key to explaining the company's zombie-like state.
"The banking system in China is still almost exclusively state-run," says Dexter Roberts, senior fellow at the Atlantic Council. "So if Beijing tells those banks to find a way to roll over the debt, then they're going to do that. Ultimately, they answer to the state and they're well aware of that."
Mr Miller agrees: "The Chinese state can order lenders to lend, suppliers to supply, borrowers to borrow. Evergrande is neither dead nor alive, but in this system it doesn't really matter."
Not all of Evergrande's creditors are Chinese. A small group of frustrated lenders outside of China have scheduled a court hearing in Hong Kong on 30 October. A judge could order a liquidation of company assets to be distributed to these foreign creditors.
IMAGE SOURCE,GETTY IMAGES
Image caption,
Rival developer Country Garden is also under intense financial pressure
However, this would be unprecedented in scale and complexity. And it would almost certainly need the approval of Chinese authorities.
So what happens to Evergrande? Some analysts say that China's leadership is yet to decide.
"A lot of the Chinese system is still modelled on the Soviet Union and there were no bankruptcies in the Soviet Union," says Logan Wright, director of China Market Research at Rhodium Group.
"You have to remember that Western capitalism has had a long time to establish a process for failed companies and how you manage their debts. In China, there isn't the same kind of template."
The Chinese government could let Evergrande collapse. But, according to Mr Roberts, Beijing would then have to clean up the mess, which would be a huge political headache.
The knock-on effects for local governments - which rely on land sales - suppliers and banks would be "potentially catastrophic", he added.
- The rise and fall of Evergrande's billionaire founder
- Anxious Chinese home buyers reel from Evergrande crisis
Other analysts argue that Evergrande's collapse, if it were to happen, could hurt the future of the Communist Party itself.
"Social stability is at stake," says shytong Qiao, an expert in Chinese property law at Duke University in the US.
"A collapse would not just leave many Chinese banks with bad debt, it would also leave hundreds of thousands of Chinese homebuyers without an apartment that they have paid for."
On more than one occasion, there have been chaotic scenes at Evergrande's headquarters in Shenzhen, when protesters scolded executives and home buyers demanded refunds on their purchases. Last year, many of them joined a mortgage strike until their homes were completed.
A collapse could shatter confidence in the housing market, plunging prices further. That would leave people noticeably poorer in a country where they invest their life-savings in new homes. And it would be a blow to an already sluggish economy - the property sector accounts for a quarter of it.
All of this could lead to more public anger and even instability. And that is perhaps the biggest threat to the Party, whose grip on power has long been bolstered by China's prosperity.
Too big to fail?
Does that mean Evergrande is - to borrow a Western phrase - "too big to fail".It is tempting to draw parallels with the subprime mortgage crisis in 2008, which saw the collapse of Wall Street investment giant Lehman Brothers and a global recession. Back then failing banks and institutions around the world were bailed out by their governments and central banks.
IMAGE SOURCE,GETTY IMAGES
Image caption,
Evergrande has over 1,300 projects in more than 280 cities in China
But China is different. Its financial system is not as enmeshed with the property sector as it is in the US.
And Beijing, which has firm control over money flows, seems in no rush to bail out Evergrande.
"The system is designed to ensure that an acute crisis will always be very unlikely," Mr Miller says. "It's not susceptible to a western-style 'Lehman moment'".
A bailout would also not fit with the ideology of China's leadership. In fact, some argue that the Party deliberately triggered Evergrande's decline because the firm's success relied on a flawed economic model.
Evergrande's rise was fuelled by heavy borrowing to build houses for middle-class Chinese looking to make money from property. But property developers borrowed too much money to build too many houses that not enough people want to buy.
"This is not a sustainable economic model and the government knew this," Mr Roberts says.
This "investment-led growth" - or building for building's sake - drove China's rise well before Xi Jinping came to power in 2012.
But over time the Party's refrain, encouraged by Mr Xi, became "houses are for living in, not for speculation".
Things came to a head in 2020 when the government, fearing a bubble in the property market, introduced new financial regulatory guidelines, known as its "three red lines".
They severely restricted developers' ability to borrow more money, eventually causing the crisis that has mired Evergrande and the rest of China's property sector.
For China's leaders, the painful but necessary measure was the only way to rein in unsustainable debt. Except they didn't anticipate how much worse it would get, especially as China's economy took a hit from sweeping zero-Covid lockdowns.
"But still, bailing out Evergrande now would effectively make a mockery of everything the government is trying to do in terms of de-leveraging the sector and changing the economy," Mr Roberts says.
IMAGE SOURCE,GETTY IMAGES
Image caption,
Country Garden was China's biggest developer of residential property
Mr Wright agrees it would be seen as a backward step: "What kind of signal are you sending to the rest of the industry if you bail out Evergrande?"
In other words, China's leadership is stuck. A collapse would be disastrous and a bailout would be ideologically untenable.
"This may be a contrarian view - but I absolutely believe Beijing has a strategy here," Mr Miller says.
"For years foreign investors have lectured Beijing that it needs to stop relying on artificially high levels of growth driven by property sector borrowing. Now that the Party is finally doing that - it was never going to be a painless process."
What new model Mr Xi, who has increasingly centralised power in his hands, wants is unclear.
At last year's Party Congress, when he secured a historic third term as leader, he warned against continuing China's "unsustainable" economic model, driven by what he calls "money worship" and "vested interests". Rebuking the dangers of unfettered capitalism, he said: "The leadership of the Communist Party of China is the defining feature of socialism with Chinese characteristics."
Amid the chaos of Evergrande, the arrest of its billionaire founder and chairman Hui Ka Yan reinforced the idea that the Party, rather than private businessmen, is still firmly in charge.
According to Mr Miller, China is consciously paying the price for "gross economic mismanagement", but its continued grip over the economy suggests it has a plan.
But others insist that is not so clear.
"Capitalism is a profit and loss system," Mr Wright says. "It will be interesting to see how China deals with the losses part".
China Evergrande ordered to liquidate in landmark moment for crisis-hit sector
By Clare Jim and Xie YuJanuary 29, 20245:45 AM ESTUpdated 12 min ago
Summary
Companies
- Evergrande unable to offer concrete restructuring plan - court
- Ruling likely to further jolt already fragile Chinese markets
- Trading in shares of Evergrande and units halted
- Decision sets the stage for complicated process
HONG KONG, Jan 29 (Reuters) - A Hong Kong court on Monday ordered the liquidation of property giant China Evergrande Group (3333.HK), opens new tab, dealing a fresh blow to confidence in the country's fragile property market as policymakers step up efforts to contain a deepening crisis.
Justice Linda Chan decided to liquidate the world's most indebted developer, with more than $300 billion of total liabilities, after noting Evergrande had been unable to offer a concrete restructuring plan more than two years after defaulting on its offshore debt and following several court hearings.
"It is time for the court to say enough is enough," Chan said in court on Monday.
The decision sets the stage for what is expected to be a drawn-out and complicated process with potential political considerations as investors watch whether the Chinese courts will recognise Hong Kong's ruling, given the many authorities involved. Offshore investors will be focused on how Chinese authorities treat foreign creditors when a company fails.
Chan appointed Alvarez & Marsal as the liquidator, saying an appointment would be in the interests of all creditors because it could take charge of a new restructuring plan for Evergrande at a time when its chairman, Hui Ka Yan, is under investigation for suspected crimes.
Evergrande, which has $240 billion of assets, sent a struggling property sector into a tailspin and dealt a blow to the economy when it defaulted on its debt in 2021. The liquidation ruling creates further uncertainty for China's already fragile capital and property markets.
Evergrande chief executive Siu Shawn told Chinese media the company will ensure home building projects will still be delivered despite the liquidation order. The ruling would not affect the operations of Evergrande's onshore and offshore units, he added.
"Our priority is to see as much of the business as possible retained, restructured, and remain operational. We will pursue a structured approach to preserve and return value to the creditors and other stakeholders", said Tiffany Wong, managing director of Alvarez & Marsal after the appointment.
Edward Middleton, also managing director with Alvarez & Marsal, said the firm would immediately head to Evergrande's headquarters.
"It is not an end but the beginning of the prolonged process of liquidation, which will make Evergrande's daily operations even harder," said Gary Ng, senior economist at Natixis. "As most of Evergrande's assets are in mainland China, there are uncertainties about how the creditors can seize the assets and the repayment rank of offshore bondholders, and situation can be even worse for shareholders."
Evergrande's shares were trading down as much as 20% before the hearing. Trading was halted in China Evergrande and its listed subsidiaries China Evergrande New Energy Vehicle Group (0708.HK), opens new tab and Evergrande Property Services (6666.HK), opens new tab after the verdict.
COMPLICATED PROCESS
Beijing is grappling with an underperforming economy, its worst property market in nine years and a stock market wallowing near five-year lows, so any fresh hit to investor confidence could further undermine policymakers' efforts to rejuvenate growth.
China’s property sales, investment and funds raised by property developers slid further in 2023 - the second biggest fall after 2022 in more than a decade.
[1/4]An Evergrande sign is seen near residential buildings at an Evergrande residential complex in Beijing, China September 27, 2023. REUTERS/Florence Lo/File Photo Acquire Licensing Rights, opens new tab
Evergrande applied for another adjournment on Monday as its lawyer said it had made "some progress" on the restructuring proposal. As part of the latest offer, the developer proposed creditors swap their debts into all the shares the company holds in its two Hong Kong units, compared to stakes of about 30% in the subsidiaries ahead of the last hearing in December.
Evergrande's lawyer argued liquidation could harm the operations of the company, and its property management and electric vehicle units, which would in turn hurt the group's ability to repay all creditors.
Evergrande had been working on a $23 billion debt revamp plan with a group of creditors known as the ad hoc bondholder group for almost two years.
A court document on Monday showed Evergrande's key offshore assets also include an unsecured interest-free loan of HK$2.1 billion ($268.78 million) to a previous unit, China Ruyi (0136.HK), opens new tab, positions in the Greater Bay Area Homeland Investment and its fund with a total book value of HK$1.6 billion, bank balances of HK$3 million and receivables of 131.2 billion yuan ($18.28 billion) owed by its subsidiaries.
Evergrande could appeal the liquidation order, but the liquidation process would proceed pending the outcome of the appeal.
"We're not surprised by the outcome and it's a product of the company failing to engage with the ad hoc group," said Fergus Saurin, a Kirkland & Ellis partner who had advised the offshore bondholders. "There has been a history of last minute engagement which has gone nowhere. And in the circumstances, the company only has itself to blame for being wound up."
Evergrande cited a Deloitte analysis during a Hong Kong court hearing in July that estimated a recovery rate of 3.4% if the developer were liquidated. After Evergrande said in September its flagship unit and its chairman Hui Ka Yan were being investigated by the authorities for unspecified crimes, creditors now expect a recovery rate of less than 3%.
Evergrande's dollar bonds were bid at around 1-1.5 cents on the dollar last week.
Evergrande’s money woes
The ruling is expected to have little impact on the company's operations including home construction projects in the near term, as it could take months or years for the offshore liquidator appointed by the creditors to take control of subsidiaries across mainland China - a different jurisdiction from Hong Kong.
The liquidation petition was first filed in June 2022 by Top Shine, an investor in Evergrande unit Fangchebao which said the developer had failed to honour an agreement to repurchase shares it had bought in the subsidiary.
Before Monday, at least three Chinese developers have been ordered by a Hong Kong court to liquidate since the current debt crisis unfolded in mid-2021.
($1 = 7.8130 Hong Kong dollars)
($1 = 7.1792 Chinese yuan renminbi)
Reporting by Clare Jim and Yu Xie; Additional reporting by Kane Wu and Selena Li; Writing by Scott Murdoch; Editing by Anne Marie Roantree, Lincoln Feast & Shri Navaratnam
Uchiha God
Veteran
AMC to the moon
Less than3% recovery rate after liquidation?
Can I get a TLDR?
Is this a classic bubble scenario?
Does this have anything to do with all of the ghost cities China has built?
Is this a classic bubble scenario?
Does this have anything to do with all of the ghost cities China has built?
Damn so is China just gonna pretend the ruling didn't happen?
They could but they would be delaying the inevitable. I think at this point they wanna deal with it and get it over with. It’s just not evergrande, it’s like the whole industry.