The endgame of EVERGRANDE

Author | Cao Anxun

Fifteen years ago, EVERGRANDE (03333.HK) went public on the main board of the Hong Kong Stock Exchange, becoming the largest mainland private real estate company by market value, and Xu Jiayin sat on the throne of China's richest man for the first time. At the celebration party, Xu Jiayin, with a glowing face, built a champagne tower, creating a scene of intense excitement.

Fifteen years have passed, and both EVERGRANDE and Xu Jiayin have fallen from grace, and now they are powerless to turn the tide, heading towards the end of their fate.

On January 29th, the High Court of Hong Kong issued a winding-up order to EVERGRANDE, making it the first large-scale private real estate company to be liquidated.

Next, the listed entity of EVERGRANDE in Hong Kong will be liquidated, debts will be repaid in order, and then it will disappear from the real estate industry.

The winding-up of EVERGRANDE marks the further acceleration of risk clearance in the real estate industry, where troubled real estate companies will either go bankrupt and liquidate, bidding farewell to the stage, or show more sincerity and make sacrifices to save themselves. They can no longer delay or lie flat.

After experiencing the pain of risk clearance, the real estate industry will enter a new era where stability is paramount.

Liquidation

With a winding-up order from the High Court of Hong Kong, EVERGRANDE has reached the end, and Xu Jiayin's industrial empire has crumbled. On January 29th, EVERGRANDE, EVERG VEHICLE, and EVERGRANDE Property in the Hong Kong stock market all plummeted and then suspended trading.

Many industry insiders believe that EVERGRANDE's debt restructuring has made no progress for a long time, and liquidation was already inevitable.

This liquidation was initiated by creditor Jia Sheng Global and filed with the High Court of Hong Kong, involving a debt amount of HKD 862.5 million, and after seven adjournments, it was finally approved.

In the ruling, the judge believed that Xu Jiayin was one of the regulatory obstacles preventing EVERGRANDE from issuing new debt instruments or new shares.

Xiao Sean, the CEO of EVERGRANDE Group, stated that the group and EVERGRANDE had done their best to defend themselves. However, the group is facing enormous difficulties in operations and has extremely limited resources. At the same time, due to the preliminary voting results of the creditors not meeting expectations and the group's controlling shareholder being subject to compulsory measures for suspected illegal activities, it has become difficult to implement the debt restructuring plan.

After issuing the winding-up order, the Hong Kong court quickly appointed liquidators. According to EVERGRANDE's announcement, Edward Simon Middleton and Wong Wing Sze of Anmeng Advisory Limited were appointed as joint and several liquidators. Both of them have served as liquidators for several companies, including Tengbang Holdings and Baitian Petroleum.

Next, under the guidance of the liquidators, EVERGRANDE will pay the price for its past recklessness. According to the ruling of the Hong Kong court, the liquidators will take over EVERGRANDE's assets, books, seals, etc., and communicate with EVERGRANDE's directors to submit a statement of assets and liabilities.

Huang Lichong, Co-founder of Co-Investment Strategy Management Group, stated that during the compulsory liquidation period, the powers of the directors and the company's operations will be suspended. The liquidators, under the supervision of the court, will be responsible for recovering and realizing the company's assets and repaying debts in order.Once the company completes liquidation, the liquidator will apply to the court for exemption from liability and dissolution of the company.

Huang Lichong pointed out that in the liquidation of companies in Hong Kong, the priority order for debt repayment is to first repay liquidation expenses, debtors with asset guarantees, followed by employee wages, social security fees, government debts, and finally repay unsecured creditors, debt interest, and subordinated creditors.

It is worth mentioning that in the liquidation of EVERGRANDE in Hong Kong, the rights of domestic homebuyers will be given priority protection. Wang Yuchen, the director of Beijing Jin Su Law Firm, said that the liquidation of EVERGRANDE does not mean the liquidation of EVERGRANDE Group's domestic entities. The disposal of EVERGRANDE's assets in mainland China needs to be carried out in accordance with the laws and procedures of mainland China.

The Supreme People's Court issued a document in April last year stating that if homebuyers purchase houses for residential purposes and have paid the full amount, their right to request delivery of the house will take priority over other creditors. Even if the house cannot be delivered, the right of homebuyers to claim a refund of the purchase price will take priority over other creditors.

Li Yujia, deputy director of the Guangdong Housing Policy Research Center, believes that this event will only have a psychological impact on the delivery of houses, and the actual impact is not significant. In the ranking of debt repayment, the protection of homebuyers' rights should be placed first.

However, the disposal of EVERGRANDE's more than 2 trillion yuan of domestic and foreign debts will be a longer and more complex process. Due to the loss of objective conditions for debt restructuring, some of EVERGRANDE's many creditors are destined to bear losses.

Liquidation

In just a few years, EVERGRANDE Group, which was once glorious and ranked among the Fortune Global 500, has been liquidated in Hong Kong, and its chairman Xu Jiayin and a group of executives have been taken away for investigation, marking the end of the golden age of real estate.

Looking back at Xu Jiayin's rise and fall in the past nearly 30 years, we can see that he is a person full of ambition and desire, who expanded wildly and ignored risks during the golden age of real estate, and eventually ended up in prison.

Xu Jiayin founded EVERGRANDE in Guangzhou in 1996, starting with Jinbi Garden and quickly making a name for himself in the real estate industry.

In 2016, EVERGRANDE's total assets and sales reached a new high, becoming the largest real estate company in the country with total assets of trillions. In the same year, EVERGRANDE Real Estate was renamed "EVERGRANDE Group", and Xu Jiayin embarked on the path of diversified businesses. EVERGRANDE Football, EVERG VEHICLE, EVERGRANDE Ice Spring, EVERGRANDE Property, Hengteng Network, and other businesses emerged.

Until the liquidity crisis of EVERGRANDE became apparent, Xu Jiayin was still in the limelight. He watched EVERGRANDE's matches side by side with Jack Ma, while aggressively leveraging the real estate market, leading EVERGRANDE to move forward at high speed. In 2017, with a net worth of 290 billion yuan, Xu Jiayin surpassed Ma Huateng, Jack Ma, and the Yang Guoqiang family, becoming the richest person in China on the Hurun Rich List.However, Xu Jiayin's high leverage and aggressive expansion "magic weapon" collided with the industry regulation storm, coupled with EVERGRANDE's failure in car manufacturing, he paid a huge price for this, and the EVERGRANDE empire is no longer as glorious as before.

Earlier this year, Newton's investment in EVERG VEHICLE failed, and the "life-saving money" of EVERG VEHICLE encountered setbacks again; EVERGRANDE Property sued EVERGRANDE on January 26th, seeking to recover 11.4 billion yuan; EVERGRANDE Bingquan, which has been losing money for years, was sold for 1.8 billion yuan; EVERGRANDE Real Estate also has hundreds of restrictions on consumption and dishonesty, and its sales in 2023 were only 60.3 billion yuan, ranking 24th in the industry.

With no progress in the debt restructuring of EVERGRANDE Group and no obvious improvement in operations, the creditors lost patience and eventually led EVERGRANDE to liquidation.

For the real estate industry, Xu Jiayin's EVERGRANDE empire reaching its end is also the beginning of a new chapter after risk clearance.

Li Yujia, Deputy Director of the Guangdong Provincial Housing Policy Research Center, believes that the EVERGRANDE incident shows that in the disposal of risks in the real estate industry, risks will be disposed of in a market-oriented manner under the premise of delivering completed buildings, and there will be no unnecessary rescue, and the concept of "too big to fail" does not exist.

At the end of last year, Dong Jianguo, Deputy Minister of Housing and Urban-Rural Development, stated at the China Economic Annual Conference that for enterprises that have lost their ability to operate due to illegal activities and have debts exceeding assets, they should be cleared in accordance with the principles of rule of law and marketization, which is also the result of market survival of the fittest.

Some investors lamented that after more than two years of crisis, EVERGRANDE finally started to clear up. EVERGRANDE's liquidation plan has reference value for other crisis-ridden real estate companies. Although the clearance will be painful, the industry will have a chance after the clearance. "Problems need to be solved. It's better to have a short-term pain than a long-term pain."

In response, at the beginning of the New Year in 2024, many crisis-ridden real estate companies such as Longfor, Xuhui, Agile, and Zhengrong successively announced new progress in overseas debt restructuring.

Li Yujia pointed out that in the future, real estate companies that operate prudently will be retained. Recently, the country has promoted the white list of real estate projects and operational property loans, which is to support these companies.

This is the dawn for prudent real estate companies. With the effects of multiple rounds of stimulating the property market, such as lifting purchase restrictions, the dawn will become brighter and brighter. After the storm, a new world of trillion-level real estate is waiting for new giants and players.