Evergrande’s Delisting Marks End of an Era for Investors

China Evergrande Group was officially delisted from the Hong Kong Stock Exchange on January 29, 2023, concluding a tumultuous chapter for investors in one of the world’s most indebted property developers. The firm, which amassed liabilities exceeding $300 billion, had faced trading suspension following a court order mandating its liquidation after failing to meet debt obligations and develop a viable reorganization plan. This delisting is notable for its scale, marking one of the largest by market value in recent years.

From Leader to Liability

Evergrande’s trajectory serves as a cautionary tale of unchecked expansion fueled by substantial debt. Once hailed as a premier developer, the company’s initial public offering in 2009 was celebrated as the largest by a Chinese private developer. At its peak, shares traded at HK$31.39, but this value plummeted to just HK$0.163 when trading was suspended. The firm’s market capitalization, which soared to $51 billion within eight years, dwindled to a mere $282 million by the time of its delisting.

“The delisting marks a significant milestone, symbolizing the culmination of Evergrande’s dramatic downfall and signaling the end of an era for China’s property-driven growth model,” said Alec Tseung, a partner at KT Capital Group. The firm did not provide any comment on the situation.

Impact on the Property Sector

Analysts suggest that Evergrande may not be the only developer facing such dire circumstances, as the property sector continues to grapple with a liquidity crisis that began in 2021. Homebuyer demand remains sluggish, contributing to a bleak outlook for the industry. Recently, China South City became the first state-backed property developer to receive a liquidation order from the Hong Kong High Court, adding to a list of private firms that have encountered similar fates.

Despite efforts from Chinese authorities to rejuvenate the property sector—previously responsible for a quarter of the nation’s GDP—many buyers are left waiting for unfinished homes. The sector saw some respite on the day of Evergrande’s delisting, with property shares in Hong Kong and mainland China experiencing a rally amid speculation of potential stimulus measures from the government.

Yet, skepticism lingers regarding the recovery prospects. “It’ll be hard to revive consumption demand and sentiment when people have an empty pocket,” noted Oscar Choi, chief investment officer at Oscar and Partners Capital Ltd, who previously covered Evergrande as an equity analyst.

As the liquidation process unfolds, many developers are scrambling to secure creditor support to avoid similar outcomes. The rapid rise and fall of Evergrande reflects the journey of its founder, Hui Ka Yan, who transformed from a rural steel technician to one of China’s wealthiest individuals. Following the company’s initial success, Hui faced legal challenges, including a lifetime ban from the securities market in March 2023 for allegations of securities fraud.

Currently, liquidators are engaged in lengthy court battles, aiming to freeze Hui’s overseas assets while recovering approximately $6 billion in dividends and remuneration paid to him and other former executives. The liquidation is expected to take up to a decade, with the recovery rate for creditors projected to be very low. Recently, liquidators reported recovering around $255 million from the sale of offshore assets, contrasted against creditor claims totaling $45 billion.

As the fallout continues, many investors, including those who purchased Evergrande wealth management products, are left disillusioned. One social media user remarked, “I chose Evergrande because I thought such a big developer would not collapse. I was wrong,” expressing the sentiment of many who trusted in the company’s reputation.

As Evergrande’s saga closes, the broader implications for the property sector and the investors it has impacted remain a critical concern for analysts and the market at large.