Investors’ Bet on China Evergrande Proves Misguided
After betting on China Evergrande’s discounted I.O.U.’s in the hopes that the Chinese government would step in to bail out the struggling property developer, investors around the world were left reeling on Monday. A judge in Hong Kong ordered the liquidation of Evergrande, which holds over $300 billion in debt, putting an end to two years of uncertainty for the company. The move sets off a frantic race by lawyers to locate and seize any assets belonging to Evergrande that can be sold.
Despite pushback from Evergrande’s lawyers, the bankruptcy judge, Linda Chan, ruled for the liquidation, citing the company’s failure to present a concrete proposal to the court for over 18 months. This decision sent shock waves through the company’s publicly listed shares in Hong Kong, causing the stock price to plummet by more than 20 percent before trading was halted. The court’s decision is expected to reverberate through China’s property sector and already jittery financial markets.
Looking ahead, the unwinding of Evergrande will put to the test long-held beliefs of foreign investors about fair treatment in China. The outcome could influence the flow of money into Chinese markets, with potential long-term implications for investment. This development comes at a crucial time for China, which is seeking investments from foreign investors amid strained diplomatic tensions with the United States.
In response to the news, Dan Anderson, a partner at the law firm Freshfields Bruckhaus Deringer, emphasized the significance of how creditor rights are handled in the aftermath of Evergrande’s liquidation, highlighting the potential impact on future investments in China.
In conclusion, the liquidation of Evergrande marks a major turning point in the saga of the embattled property developer and has significant implications for global investors. The case will be closely watched to gauge China’s handling of disputes involving its struggling companies, with potential far-reaching consequences for foreign investment in the country.