Evergrande: Hong Kong court orders liquidation of debt-ridden Chinese real estate giant

A Hong Kong court on Monday (Jan 29) issued an order for the liquidation of debt-ridden Chinese real estate giant Evergrande - once touted too big to fail. The verdict was delivered after the lawyers representing Evergrande failed to convince the judge that the company had a working restructuring plan.

Judge Linda Chan called for the liquidation of the company saying "enough is enough" due to the "obvious lack of progress on the part of the company" to furnish a viable rescue plan.

"I consider that it is appropriate for the court to make a winding-up order against the company and I so order," Chan said.

The decision by Judge Chan is likely to send ripples across China's finance market as Evergrande's ultimate demise comes two years after it defaulted.

Regarded by many domain experts as the poster child of China's real estate crisis, Evergrande has accumulated $325 billion in liabilities. After the announcement, its shares fell by more than 20 per cent in Hong Kong.

What is liquidation?

Liquidation is a process under which a company that has defaulted and is unable to operate further has its assets seized and sold off to generate cash.

The cash generated is then used to pay off creditors, or anyone the company owes money. However, in the case of Evergrande, it remains to be seen if the liquidation process will be followed by the Chinese government,

What happened to China's real estate market?

The once-booming property market of China now wears a desolated and dilapidated look. The builders are not willing to take on new projects while the ones underway have been halted, leading to a precarious situation.

For decades, the country'seconomy relied on the housing sector fuelled by population growth. However, after China's population growth stalled, the strict COVID-19 regulations took force and President Xi Jinping announced a crackdown onrisky practices in the industry, the housing sector nearly collapsed.

A combination of the aforementioned reasons hasleftreal estate developers with enormous debt and more new, unfinished housing units than buyers.

Home buyers are being forced to live in unfinished and 'rotting' apartments. The living conditions are harsh, with even basic amenities missing.

While some are living in the flats braving bad conditions, others are forced to live on rent in the same city. In addition to the mortgage of the flat, the burden of rent is breaking the back of many, further pushing the Chinese economy into a spiral.

(With inputs from agencies)