The state of China Evergrande Group, a highly leveraged real estate developer based in China, continues to decline as the company has been ordered to delist from the Hong Kong Stock Exchange on August 25. This marks yet another setback for an industry already in turmoil, exacerbated by the company’s immense debts that exceeded $300 billion to banks and bondholders. The Hong Kong court began the liquidation process back in January 2024 when it was determined that Evergrande failed to propose a feasible restructuring plan for its overwhelming obligations. Consequently, trading of its shares has been suspended since the court’s ruling.
According to Hong Kong’s regulatory framework, any company whose securities are suspended from trading for an extended period—specifically 18 months—may face delisting. On August 8, Evergrande received formal notification from the Hong Kong Stock Exchange regarding the cancellation of its listing, given that trading had not resumed by July 28. The company has clarified it will not pursue any review of the exchange’s decision, placing it on a definitive path towards delisting.
In prepared statements, Evergrande indicated that shareholders should be aware that while share certificates will still hold validity after the delisting, the shares will no longer be tradable on the stock exchange. This has heightened worries for many investors closely tied to the company, as the implications of the delisting and liquidation become more pronounced.
Evergrande is emblematic of a wider crisis gripping the Chinese real estate sector, which has been impacted significantly since regulatory crackdowns on excessive borrowing were instituted in 2020. The inability to secure funding has triggered defaults on debts among numerous developers, transforming what once was a robust industry into a sector marked by instability. This has had cascading effects on China’s economy—the second-largest globally—leading to a prolonged downturn in property prices and confidence in market stability, despite earlier government interventions.
Efforts to liquidate Chinese property developers have attracted significant judicial attention in Hong Kong. Among the notable cases is Country Garden, another major player in the industry, which faces its own hearings in January 2025. Another smaller entity, China South City Holdings, was also demanded to liquidate recently, indicating the widespread challenges facing the sector.
Founded by Hui Ka Yan, known in some circles as Xu Jiayin, Evergrande has a substantial asset portfolio predominantly concentrated on the Chinese mainland. The company was publicly listed in 2009 as Evergrande Real Estate Group and has seen its share value plummet, with trading suspended as of January 29, 2024, when shares were valued at a mere 0.16 Hong Kong dollars ($0.02).
Recent reports from the company’s liquidators exposed alarming figures indicating debt claims totaling $45 billion, significantly surpassing the previously reported liabilities of $27.5 billion disclosed in December 2022. As the liquidation process advances, the liquidators stated they now control over 100 subsidiaries, with collective assets valued around $3.5 billion as of the beginning of 2024. However, estimates regarding the potential realizable amounts from these assets remain unclear, further deepening concerns regarding the outcomes of the liquidation.
So far, only $255 million worth of assets have been sold, described as “modest” by the liquidators, with the majority stemming from subsidiary assets. The intricate ownership structures complicate the matters further, limiting access to resources that could improve financial recoveries.
Despite the grim outlook, the liquidators harbor a faint hope for a potential restructuring but acknowledge that a comprehensive solution appears unlikely at this stage. The founder, Hui Ka Yan, has faced his own struggles; he was detained in late 2023 on accusations of criminal activities, amplifying Evergrande’s troubles. Moreover, penalties imposed by the China Securities Regulatory Commission, including fines totaling 4.2 billion yuan (approximately $584 million) on Evergrande’s separate subsidiary, underline the severity of the company’s legal and operational challenges.
In a significant crackdown on the entire audit process, Chinese authorities recently issued a six-month ban to PricewaterhouseCoopers (PwC) and levied significant fines over its engagement in auditing the beleaguered corporation. Such moves suggest a concerted effort to enforce accountability amidst the prevailing crisis surrounding China Evergrande Group and the broader property market in the country.
