On January 29, the Hong Kong High Court officially issued a winding-up order for China Evergrande Group, which means that the real estate company, which has been heavily indebted for many years, finally ushered in the final judgment day.
As soon as the liquidation order was issued, the fate of Evergrande was basically settled. Under Hong Kong law, a company in liquidation is required to appoint a liquidator to carry out an inventory and disposal of the company's assets to pay off its debts. This marks that Evergrande has officially entered the bankruptcy procedure, and Evergrande, which has been sitting on the throne of "China's No. 1 real estate company" for 20 years, has come to an end.
The key reason why Evergrande has come to this point is that its debt restructuring plan has never been able to move forward. A minimum of $16 billion in external debt cannot be restructured, let alone a huge amount of domestic debt. It can be said that the restructuring is destined to be a farce, and Evergrande's bankruptcy is inevitable.
Although it is only liquidated in Hong Kong, it will undoubtedly push the entire Evergrande Group into the bankruptcy process. Although Evergrande has many high-quality assets in China, they are all highly collateralized, and in fact it is unsustainable. Whether it is liquidation or restructuring, Evergrande's gap is too huge to fill.
So, will Evergrande choose to liquidate and go bankrupt, or restructure and retain part of its business? Industry insiders believe that Evergrande is more likely to choose the restructuring path.
Although Evergrande is insolvent, its Evergrande Automobile and other businesses still have potential, and many investors are eyeing it. In the event of liquidation, these assets will also be auctioned together, to the detriment of all parties. Restructuring can strip high-quality assets and bring in investors to take over, which can not only recover part of the value for creditors, but also preserve part of the business.
It is expected that after the restructuring of Evergrande, its real estate business may be terminated. In addition to the first-tier core projects, many second- and third-tier stock houses will be taken over. But manufacturing businesses such as Evergrande Auto may be bought by car companies or technology companies. Just like after the bankruptcy of Hainan Airlines, aviation assets are still favored by many powerful enterprises.
After the restructuring model is determined, how will Evergrande's trillions of debts be handled? According to industry analysis, debts will be repaid mainly through asset disposal, equity transfer, etc. At the same time, the court will also protect the rights and interests of home buyers in accordance with the law and ensure that the sold houses can be delivered.
Of course, the focus of attention on this matter is, what will be the fate of Xu Jiayin, the founder of Evergrande?
At this point, it is a foregone conclusion that Xu Jiayin will become a debtor from a major shareholder of Evergrande. His huge personal wealth will also be wiped out in the restructuring. It is rumored that Xu Jiayin has transferred tens of billions of assets to relatives and friends abroad, but it is difficult to avoid the fate of being pursued by creditors.
And Xu Jiayin himself is more likely to face a heavy sentence. He is not only responsible for Evergrande's violations of laws and regulations, but also the recent scandals such as inflated income and technical divorce. Xu Jiayin may even be prosecuted for multiple economic crimes.
Experts pointed out that if Xu Jiayin, a figure in a big case and an important case, is not severely punished, it will only bring more negative demonstration effects. Therefore, it can be expected that the trial and punishment of Xu Jiayin will be extremely severe. Shareholders should not expect to receive any compensation, Xu Jiayin and his family are likely to be ruined, and having nothing is the right way.
The collapse of Evergrande is a tragedy finally caused by the accumulation of shortcomings in the real estate industry. But it will also serve as a warning, forcing more real estate companies to straighten out their debts, return to their real estate roots, and no longer rely on leverage to continue their lives. At the same time, the regulatory authorities should also take Evergrande as a warning, take the initiative to resolve risks in a timely manner, and avoid greater **.
There is no doubt that the collapse of Evergrande will reverse the direction of China's real estate development. But a new path is also being opened, and the industry will become healthier and more sustainable. This may be the Chinese way of disruptive innovation, in a very painful way, to end one era and usher in another.