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Evergrande was once China’s top real estate developer, but ever since it defaulted on loans in 2021 the company has been in a kind of slow-motion collapse. With more than $300 billion in debts and contractors who hadn’t been paid, there seemed to be no way for the company to recover.
The central problem at Evergrande (and other, similar developers) seems to be that it was using current deposits on as-yet-unbuilt apartments to cover the costs of building apartments it had already been paid for. That kind of ponzi scheme obviously doesn’t work when no one is willing to risk more money (placing an order for a future project) because the company has defaulted on a loan. Finally, today, a judge in Hong Kong called it a lost cause and ordered the company to dissolve so its assets could be sold.
Months after China Evergrande ran out of cash and defaulted in 2021, investors around the world scooped up the property developer’s discounted I.O.U.’s, betting that the Chinese government would eventually step in to bail it out.
On Monday it became clear just how misguided that bet was. After two years in limbo, and with over $300 billion in debt, Evergrande was ordered by a judge in Hong Kong to liquidate, a move that will set off a race by lawyers to try to find and grab anything belonging to Evergrande that can be sold…
The order means that Evergrande, which has been limping along for two years, unable to pay its debts or function normally but still in operation, will now likely face a protracted period dismantling a massive business with projects that span hundreds of cities and unrelated businesses like an electric vehicle company.
