Evergande’s creditor asks Hong Kong court to liquidate indebted builder
(Yicai Global) June 27 — A foreign creditor has filed a petition in the Hong Kong High Court to liquidate China Evergrande Group, the world’s most indebted developer. But the move is unlikely to force the automaker into liquidation, as it is primarily aimed at putting pressure on the company, according to an economist.
Top Shine Global Limited of Intershore Consult Samoa filed the petition, according to a recent announcement on the Hong Kong Justice website, with a preliminary hearing scheduled for August 31.
Creditors and/or company officers can file for liquidation if a company has excess liabilities. If the plea is granted, the court will issue a binding winding-up order requiring the company to sell assets to pay off the debt and distribute the remaining assets.
Companies that default on overseas debt have often triggered liquidation conditions, so there is a high likelihood that offshore courts or arbitrators will rule in favor of liquidation, Bai Wenxi said, chief economist at Interpublic Group China, at Yicai Global.
But Bai also pointed out that since mainland promoters’ assets and business are largely in China, offshore liquidation orders may not be upheld by mainland courts. Thus, a petition for liquidation generally aims to put pressure on the defaulting party to make compromises advantageous to the creditor.
Still, Bai noted that if the court passes the liquidation petition, though it may not be enforceable, it would harm the reputation, brand and capital market business of the company concerned. He believes that in addition to affecting the image and reputation of a real estate company, a request for liquidation does not seem to force them to compromise.
Prior to Evergrande, Chinese developers Dafa Land and Fantasia Holdings also faced liquidation petitions from foreign creditors this year.
Since Evergrande’s cash crunch began in the second half of last year, its sales have plummeted. From September to March, its average monthly sales practically stagnated between 20 and 30 million yuan (between 3 and 4.5 million dollars). April sales reached only CNY 3.09 billion (CNY 462 million).
Meanwhile, because Evergrande has said it will never sell off its land resources at a low price, the group’s asset disposals have also been fairly slow. The company announced only four divestments for a total of less than 3 billion yuan. It plans to announce a preliminary restructuring plan by the end of July.
Publishers: Tang Shihua, Peter Thomas