China Evergrande liquidation: ‘thin payout’ likely for offshore creditors as legal drama plays out, S&P says
- The liquidation order could be difficult to implement as most of Evergrande’s assets are not in the three mainland Chinese cities covered under a cross-border scheme
- Offshore bondholders will have to wait for years to even get a few cents on the dollar once the liquidation plays out, S&P Global Ratings analyst says
An agreement struck in 2021 to mutually recognise liquidation orders in mainland China and Hong Kong may not apply to China Evergrande Group, according to a S&P Global Ratings report on Wednesday.
The liquidation order is difficult to implement because most of Evergrande’s assets are not in the three mainland China cities – Shanghai, Xiamen and Shenzhen -covered under the pilot programme, according to the report.
The agreement – the Mainland-Hong Kong Cooperation Mechanism – was struck in May 2021 for mutual recognition and assistance in insolvency proceedings between the courts in the three mainland cities and Hong Kong.
“The liquidation is a milestone for China’s biggest corporate defaulter with US$337 billion in liabilities,” said Esther Liu, credit analyst at S&P Global Ratings. “But much of this story is yet to be told. The bulk of the issuer’s assets and liabilities are in mainland China, outside the purview of the Hong Kong court.”
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Adding to the pain, Evergrande’s offshore creditors will only be paid after the onshore creditors, as they rank lower in the repayment pecking order when the assets are liquidated, the report said.