You have read regularly on Yoursurvivalguy.com about the world’s most indebted property developer, Evergrande, a Chinese firm that has been working its way through a slow-motion collapse, and the order has finally come to liquidate the company. From the first reports, it appears that buyers who put down payments on apartments that were never built will receive seniority to lenders, leaving Evergrande’s creditors with little to nothing. Bloomberg reports:
China Evergrande Group creditors are set to recover just a fraction of the billions of dollars worth of the builder’s debt they hold, with most of its assets likely hard to access for liquidators.
Almost all of Evergrande’s assets are in mainland China, presenting legal hurdles for non-Chinese administrators. The key Hong Kong holdings add up to just $2.9 billion compared with $25.4 billion in offshore liabilities as of the end of June 2022, according to a court document and Bloomberg’s calculations.
Creditors had sought to stave off the liquidation order through more than two years of negotiations with the world’s most-indebted developer, but that had failed to yield substantial progress. While the recovery prospects are bleak for offshore bondholders, what liquidator Alvarez & Marsal Inc. does may serve as a template for Chinese developers as the historic property crisis drags on.
“The eventual winding-up of Evergrande is a lose-lose situation for the company and its creditors,” said Hansen Zhou, senior partner at Bohe & Hansen. “The Hong Kong court has pushed the company to propose multiple rounds of restructuring schemes before making a liquidation ruling, demonstrating sufficient professional patience and social responsibility.’
Action Line: Evergrande isn’t the only company built like a house of cards. My recommendation is always diversification. The better diversified an investor is, the less likely a complete collapse like Evergrande’s will do permanent damage. When you want to talk about a diversified portfolio, I’m here. In the meantime, click here to subscribe to my free monthly Survive & Thrive letter.
E.J. Smith - Your Survival Guy
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