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Explained: Evergrande, world's most indebted developer, faces liquidation; Global real estate in turmoil

Evergrande is set to go through a liquidation process after a Hong Kong court ruled in that direction recently. A huge chunk of the companies’ 1.7 trillion Yuan could be sold and handed over to creditors for repayment of staggering loans.

Explained: Evergrande, world's most indebted developer, faces liquidation; Global real estate in turmoil avv
First Published Jan 29, 2024, 6:25 PM IST

The Chinese housing market is set to witness one of the toughest periods as the Evergrande company has now been ordered to liquidate. The world's most indebted developer's current state is likely to send shockwaves to the Global real estate market. A Hong Kong court ordered Evergrande to liquidate after discovering debt worth $300 billion. 

Evergrande acquired loans after loans when the conditions were friendly mostly from global creditors. However, a change in China's policy thus controlling credit access in 2020 and lowering domestic demands in the real estate market has plummeted the company. Global creditors including those in China have taken Evergrande to court for outstanding payments. The situation comes as a huge blow to not only the global real estate markets but also the economy of China to which the domestic real estate market accounts for about 25 percent of the share.

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The controversial conglomerate defaulted in December 2021 sending shockwaves to the real estate market. The shares of Evergrande plummeted in the stock market creating another headache for the management. As a result, stock exchanges in China halted trade in the free-falling shares of Evergrande. Top Shine Global and other creditors moved to the Hong Kong court for legal proceedings.

The court's ruling has been brutal for Evergrande as it has declared the current management devoid of any control. According to the court order, a new management will take place to address creditors' concerns. Moreover, a new body will be appointed to oversee the liquidation process of Evergrande. According to the asset listing, Evergrande has close to 1.7 trillion Yuan as its financial assets. But a major chunk of it lies in mainland China which could deprive global creditors of their money.

Hong Kong courts and the courts in mainland China have different processes due to separate jurisdictions. Even if courts in mainland China allow the handing over of Evergrande’s financial assets, it is likely to prefer the domestic creditors leaving out global creditors amidst increased tension. Foreign companies have experienced increased discrimination by the Chinese administration due to which there has been an exodus of foreign companies disinvesting China and moving their business elsewhere. The market has reactivated negatively to the whole crisis resulting in a 59 percent downfall over the previous year.

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