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Evergrande’s shares soared as much as 21.8 per cent intraday before trimming gains to 9.2 per cent to HK$0.26 at the close. The shares have slumped nearly 99 per cent from their peak in 2021, erasing some HK$225 billion from the company’s market value.

Top Shine’s lawyer, at the previous hearing in October, had demanded an immediate winding up of the developer.

Evergrande’s lawyer from Sidley Austin, as usual, pleaded the hearing to be postponed to allow the company more time to discuss the newly revised debt restructuring proposals with the creditors.

“There is still room for dealing with the issues,” said the Sidley Austin lawyer, adding that the scheme had gained support from some creditors.

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The judge demanded Evergrande inform all classes of creditors about the debt restructuring plan and not just one group.

There are two categories of Evergrande creditors – class A is mainly involved in senior dollar notes, Hong Kong dollar-denominated convertible bonds and one private loan, while class C is linked to debts including private loans, repurchase obligations and guarantees provided by the company.

“The company should talk to not only group A creditors but also group C creditors,” Justice Chan said. “My understanding is that group C creditors have complained that they are exhausted as they have never been consulted or exchanged their views in the negotiations. It is important for the company to gather support from all creditors to the revised proposals. If group C creditors indicated objections to the scheme, the restructuring plan will not get support.”

The judge also demanded Evergrande inform the public about the new debt restructuring plans, while also ordering the developer to inform creditors of the details at least one week before the next hearing.

Is Evergrande too big to fail?

Some creditors were surprised at the adjournment of the hearing.

“The petitioner changed its position and didn’t push to wind up the company, which was a surprise to us,” Neil McDonald, a partner at Kirkland & Ellis, who represents an ad hoc group of creditors, mostly in the class A group, said after the hearing.

“The proposal that they referred to in court had been rejected by my clients, and we would hope that they will come back to us with a revised proposal that is acceptable to my clients,” McDonald said.

The group may continue to file to liquidate Evergrande “if the company does not come up with a better proposal” before the next hearing, even if the petitioner withdraws, he added.

The company proposed a new restructuring plan to swap creditors’ debts for 30 per cent stakes in its Hong Kong-listed subsidiaries and a 17.8 per cent stake in Evergrande, according to Reuters’ report on November 30.

Veteran liquidator Derek Lai, vice-chair of Deloitte China, declined to comment on the Evergrande case, but said in general, the expected return for creditors in a successful restructuring would typically be higher than in the event of a liquidation.

“Once a company enters liquidation, the prices achieved from sales of certain assets could be lower than the prices achievable before a winding up order is made,” Lai said.

Jonathan Leitch, a partner with law firm Hogan Lovells in Hong Kong, said a winding-up order would mean “offshore creditors will very likely crystalise a significant loss on their bonds with little prospect of any recovery for years”.

The winding-up petition was filed by Top Shine Global in to recover HK$862.5 million (US$110.4 million) from a botched investment in Evergrande made in March 2021.

Childhood dreams fuelled a debt binge that’s taken Evergrande to the brink

Evergrande was founded by tycoon Hui Ka-yan, who is also known as Xu Jiayin on the mainland, in Guangzhou in 1996. The company listed in Hong Kong in 2009.

Under Hui’s aggressive strategy, the company grew rapidly as it borrowed heavily and sold flats off-plan. Evergrande used the high turnover to generate cash flow to fund growth, becoming the biggest Chinese developer by sales in 2017.

It then expanded into various areas, including football clubs, theme parks, bottled water, wealth management, healthcare services and electric vehicles.

The developer started experiencing problems repaying debt in 2021, with more than US$20 billion of debt in default. It had 2.39 trillion yuan (US$330 billion) of liabilities and only 13.38 billion yuan of cash on hand as of June 30, according to its latest interim report.

The developer has been trying to reorganise some US$20 billion of the defaulted debt and claims, in what is the largest workout by a Chinese company with offshore creditors. A proposal presented to creditors in March offered some creditors options, including instruments tied to equity of the company and its two Hong Kong-listed units.

Evergrande’s ‘cash-burning’ EV unit at risk of hiatus in restructuring plan

However, shares of the car unit and property-management firm have plunged more than 70 per cent this year, putting their combined market value below HK$11 billion.

But the restructuring process again teetered in September, as Hui and several executives of Evergrande’s major mainland unit were detained by Chinese authorities. The company has also been unable to issue new bonds – a key plank in the restructuring plan – under local rules.

The regulatory uncertainty on the restructuring has proved to be an irritant to an ad hoc group of offshore creditors, who collectively hold more than US$6 billion.

They have argued that the situation has left them “in the dark” and that the liquidation was likely to “lead to the uncontrolled collapse” of Evergrande, according to a statement issued by their legal adviser Kirkland & Ellis, and financial adviser Moelis & Company Asia in October.

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