A Hong Kong court has issued a unit liquidation order for a Chinese developer who defaulted on its offshore debt, the first such instance against a major builder during the country’s property debt crisis and opening the door to further such decisions.
The order regarding Yango Justice International Ltd (陽光城嘉世國際) was dated last Monday, according to a liquidation search report made on the Hong Kong Official Receiver’s Office website.
The first hearing date for the case was September 14 and the adjourned hearing was Monday of last week, the same day of the order. The company is a unit of Yango Group Co (陽光城集團).
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Hong Kong has served as a gateway for investors to access high-yield credit from China, a market dominated by builders but which has fallen into unprecedented distress this year, reversing what was once one of the most lucrative debt jobs in the world.
The fall comes as China grapples with a real estate crisis fueled in part by a crackdown launched in 2020 on excessive borrowing by real estate companies and speculation by homebuyers. Some builders left projects unfinished as they struggled to pay suppliers and creditors, causing defaults to rise.
This sparked a wave of liquidation petitions filed in courts in Hong Kong or the Cayman Islands against developers including China Evergrande Group (恒大集團) – the giant whose default on US dollar banknotes at the end of the he past year has exacerbated the broader industry crisis.
Evergrande said it was advancing offshore debt restructuring work with its financial and legal advisers.
Creditors file liquidation petitions when they are frustrated with the lack of progress in a company’s restructuring, wrote fixed income research analysts at BOC International Holdings Ltd (中銀國際), including Wu Qiong (吳瓊), in an October 13 report.
“In most cases, creditors seek more serious negotiations with the debtor by putting pressure on the debtor company or a solution through the legal process,” they said.
If a Hong Kong court issues a winding-up order and appoints a provisional liquidator, the latter takes control of the business in question and disposes of the realizable assets, according to an explanation posted on the Official Receiver’s Office website.
The remaining funds are distributed to creditors whose claims have been admitted.
Yango Justice first defaulted in February when it failed to pay $27.3 million in interest on two U.S. dollar bonds within a 30-day grace period, ending months of battles with debt which included seeking payment extensions.
Parent group Yango disclosed a liquidation petition against its unit in July involving a payment of US$8.5 million for offshore notes and said it “strongly” opposes the filing.
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