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An Evergrande winding-up hearing, which took place on October 30th, has been adjourned until December 4th. The Hong Kong High Court judge overseeing the case has given China Evergrande Group, the most heavily indebted property developer in the world, one final opportunity to propose a restructuring plan before facing liquidation. Evergrande currently has more than $300 billion in liabilities and defaulted on its offshore debt in 2021, becoming emblematic of the debt crisis prevalent in China’s real estate sector.

Justice Linda Chan stressed that the forthcoming hearing would be the last chance for Evergrande to present a “concrete” revised restructuring proposal. Failing to do so would likely result in the winding-up of the company. However, even in the event of liquidation, negotiations between a liquidator and creditors may still occur to facilitate a potential restructuring deal.

Although a liquidation of Evergrande would undoubtedly reverberate throughout global capital markets, it is not expected to have an immediate impact on the company’s ongoing operations, including its numerous home construction projects. The Chinese property sector plays a significant role in the world’s second-largest economy, accounting for approximately 25% of its activity. The sector’s difficulties have caused considerable concern in global markets and prompted the Chinese government to implement various measures intended to reassure investors and homeowners.

Evergrande had been working on a $23 billion offshore debt restructuring plan; however, this plan was derailed when the company’s founder, Hui Ka Yan, became the subject of a criminal investigation. Consequently, mainland regulators prohibited Evergrande from issuing new dollar bonds as part of its restructuring plan due to the investigation into its flagship property unit. Evergrande subsequently canceled creditor votes originally scheduled for late September.

In an attempt to overcome regulatory hurdles, Evergrande’s lawyer informed the court that the company intends to revise its restructuring proposal. The revised plan seeks to capitalize on the value of its two Hong Kong-listed units, Evergrande Property Services Group and Evergrande New Energy Vehicle Group. These units are not subject to the same regulatory constraints as the flagship property unit.

The initial restructuring plan, proposed to creditors in March, presented various options for debt-for-equity swaps and the issuance of new bonds backed by the group and the two subsidiary units. However, sources indicate that the plan failed to gain sufficient support from one class of creditors.

During the hearing, a lawyer representing the major bondholder group of Evergrande expressed support for the adjournment. They argued that a successful restructuring plan would offer creditors a higher recovery rate than the less favorable scenario of liquidation, which would likely result in a recovery rate of less than 3%.

Currently, Evergrande has not provided any official comments regarding the winding-up hearing and the ongoing restructuring efforts.

In a related development, the winding-up order for Logan Group, another property developer, was also adjourned until December 4th by the same Hong Kong court. The Shenzhen-based company previously announced the suspension of interest payments and a plan to restructure its offshore debt, including $3.7 billion in dollar bonds, due to liquidity constraints. However, little progress has been made in the restructuring talks since the company began negotiations with offshore creditors in March, according to bondholders.

Ultimately, the evolving situations with Evergrande and Logan Group underscore the challenges faced in the Chinese property sector. The outcomes of these cases will have significant implications for the sector’s stability and the broader global market.

In this context, AI legalese decoder can provide valuable assistance by analyzing and decoding complex legal documents, agreements, and proceedings related to the Evergrande and Logan Group cases. The AI technology can help legal professionals and stakeholders navigate the intricate details of the legal proceedings more comprehensively and efficiently, ensuring a better understanding of the implications and potential outcomes. By streamlining the analysis of extensive legal information, AI legalese decoder can facilitate well-informed decision-making and support a more proactive approach to addressing the challenges associated with these complex cases.

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