5 ms·

CNN has quotes to the contrary. Most of their Chinese assets are owned by Hengda Real Estate Group, which is legally independent. https://www.cnn.com/2024/01/2

• loeg 3y ago
  Interesting. It's unclear how you liquidate the parent company without liquidating subsidiaries (who is going to buy Hengda RE?) and it seems like legally the HK decision should be binding: > Hong Kong and the mainland city of Shenzhen — where Evergrande is based — have a mutual insolvency recognition agreement, but it’s “effectively inoperative” But China basically ignores HK in this.
  • i_am_jl 3y ago
    I'm very naive about all of this, can I ask what this means? Evergrande has been ordered to liquidate, on paper this means that the Chinese subsidiary Hengda must also liquidate, but China's just... not going to liquidate Hengda? So instead of Evergrande's creditors dividing up Evergrande+Hengda's assets only Evergrande's assets are going to be liquidated? If that's right, how does that work? Does Hengda get bought and the purchase price distributed to creditors? Does China just tell Evergrande's creditors "too bad"?
    • chasd00 3y ago
      > Does China just tell Evergrande's creditors "too bad"? that sounds inline with standard operating procedures.
      • miohtama 3y ago
        It also means that foreign direct investments to China will dry up. However they’d likely dry up any case due to US vs. China trade war.
        • thriftwy 3y ago
          That's the US, when they see money to be made in next quarter they go for it regardless. Not going to dry up.
        • loeg 3y ago
          A little bit, maybe, but probably not entirely. The joke is that debt investors have no memory. For example, Argentina has defaulted many times in recent memory but was still able to market a 100-year bond in 2017 (which it has already defaulted on).
          • berserk1010 3y ago
            miohtama is actually correct. Foreign investors have snatched back nearly 90% of the money they put into Chinese stocks this year (2023) https://markets.businessinsider.com/news/stocks/china-economy-chinese-stock-market-foreign-investor-cash-flow-money-2023-12 https://markets.businessinsider.com/news/stocks/china-econom... Foreign investment in China turns negative for first time https://asia.nikkei.com/Economy/Foreign-investment-in-China-turns-negative-for-first-time https://asia.nikkei.com/Economy/Foreign-investment-in-China-...
            • hmm37 3y ago
              Equities are different from bonds. Bonds are being snapped up by a lot of foreign investors.
              • berserk1010 3y ago
                Chinese equities suffered a US$3.4 billion outflow from non-resident portfolios in the last month of 2023, while Chinese bonds only had a marginal US$189 million inflow for the same month, according to preliminary data from the Institute of International Finance (IIF) released on Thursday. https://www.scmp.com/economy/china-economy/article/3248078/china-hit-us34-billion-equities-outflow-wary-investors-eye-other-emerging-markets https://www.scmp.com/economy/china-economy/article/3248078/c... That said, once foreign bond buyers realize how much foreign creditors get back from the Evergrande debt (0 cents on the dollar), pretty sure foreign bond purchases will drop fast
    • colechristensen 3y ago
      From CNN: >the implications for the company’s vast business in mainland China are unclear. >Hong Kong and the mainland city of Shenzhen — where Evergrande is based — have a mutual insolvency recognition agreement, but it’s “effectively inoperative” and courts in the city are “extremely unlikely” to recognize the offshore liquidator, Silvers said. What we have here is a complex set of semi-international legal issues on the other side of the world. I don't trust HN commentary on the subject. It seems very undecided for now and will be a sticky situation for China, Hong Kong, and foreign investors.
      • miohtama 3y ago
        China is not a rule of law country. It really does not matter what laws or treaties say, as Xi can just snap fingers and the law will be different.
      • Animats 3y ago
        South China Morning Post is trying to figure it out.[1] "A Hong Kong court on January 29 ordered the liquidation of China’s property giant Evergrande, but the firm said it would continue to operate in a case that has become a symbol of the nation’s deepening economic woes." "Given that most of the company’s assets are onshore, we do not think that offshore bondholders would receive substantial recovery proceeds from the liquidation. In addition, it is unclear whether the Hong Kong court’s liquidation order could be enforced onshore; there has been some mutual recognition of bankruptcy proceedings between Hong Kong and mainland courts, but the enforcement is difficult in practice." Reads like their reporter called up the usual suspects for comments. There's nothing at all about Evergrande in China Daily, which means there's no official position yet. [1] https://www.scmp.com/business/china-business/article/3250215/what-does-evergrandes-liquidation-order-mean-chinas-property-sector-why-market-cheering https://www.scmp.com/business/china-business/article/3250215...
        • sanxiyn 3y ago
          I am also trying to figure this out. I created a prediction market at Manifold whether a mainland Chinese court will recognize Hong Kong-appointed liquidator. Please make your bets and comments if you have insight! https://manifold.markets/SanghyeonSeo/will-hong-kongappointed-liquidator https://manifold.markets/SanghyeonSeo/will-hong-kongappointe...
    • kube-system 3y ago
      > Does China just tell Evergrande's creditors "too bad"? In a broad sense, that's how bankruptcy works in the west too. The government has rules for who gets paid first, and everyone else is SOL.
      • bozhark 3y ago
        Depends on what chapter is filled and approved
        • kube-system 3y ago
          Discharge can happen under both 7 and 11 which are the most common in the US. Chapter 7 is the equivalent of what is being discussed in this particular case.
      • loeg 3y ago
        Yeah but in the west it is based on claim seniority rather than like, hose foreign creditors first.
        • faeriechangling 3y ago
          Which is why the west has been getting taken for a ride for years.
        • kube-system 3y ago
          No, in the US, claims are paid out based on the type of debt, outlined in the Absolute Priority Rule.
          • loeg 3y ago
            We are talking about the same concept but with different terminology. Not "No, ...".
            • kube-system 3y ago
              Maybe we are, but I'm not really sure 'seniority' is a great word to describe it. The term usually implies ranking due to duration. But it's really just a ranking prescribed by law. Often the shortest term lenders who are facilitating the bankruptcy process are first!
    • KaiserPro 3y ago
      Liquidate doesn't mean destroy, it means finding assets of value, dividing them up if that gets better value, and selling them to pay off as much debt as possible. if Hengda is a going concern by it's self, then it might be sold off to a bunch of people to raise cash, or shares of it given to creditors to sell off them selves. but then there is the concept of senior and junior debtors, and the like.
    • xwolfi 3y ago
      In HK we made a deal with China so that our judicial orders regarding Evergrande are considered in their jurisdiction. For now we're waiting to see.
  • vidarh 3y ago
    Depends on how they operate. Selling subsidiaries as going concerns or handing their shares to creditors of the parent are often options. It's in no way a given that a subsidiary is insolvent just because the parent is. This isn't unusual. E.g. when Commodore went bankrupt several subsidiaries continued to operate as long as they had stock, and the UK subsidiary even tried to organize a buyout of its parent.
    • loeg 3y ago
      > It's in no way a given that a subsidiary is insolvent just because the parent is. In general, sure, but in this case, no. The subsidiary has, at most, $260B of assets against $275B of debt. It's insolvent.
      • vidarh 3y ago
        Even then, depending on jurisdiction (and I have no idea about the specifics in China) balance sheet insolvency may or may not be sufficient for bankruptcy. E.g. in particular in situations where there is any way to justify that they will not become cash flow insolvent. If they can somehow make a reasonable case that their assets will appreciate in value faster than their debts will come due. Thought it might put additional constraints on their spending. Note that I'm not arguing that they're a going concern - I have no idea, but given they're presumably dependent on Chinese property prices for their assets valuation it does sound dicey - just how it might be possible for them to justify not winding up the subsidiary.
  • onlyrealcuzzo 3y ago
    HK is where the foreign debt is. This is freeing the Chinese business of its obligations of $25B in foreign debt. Presumably that makes for a better business. Who knows. Evergrande could easily be worth less than -$25B. No one wants to buy a business worth negative money. But it's definitely worth less negative money now.
    • bozhark 3y ago
      [flagged]
      • dayjaby 3y ago
        What does income have to do with net worth?
      • echelon 3y ago
        Income and expenses can be adjusted. Your liabilities cannot.
    • cm2187 3y ago
      If evergrande is the parent company, I don't think a restructuring of its own debt affects the debt of its subs, so the chinese sub would still be liable for the funding it borrowed from the parent unless it is itself restructured. If you borrow money from a bank and that bank goes bust, you still owe the full balance based on the initially agreed repayment schedule, it is just that your loan is now an asset contributing to the recovery of the bank's own creditors.
  • cm2187 3y ago
    If the subsidiary is performing (not saying it is the case here), it's unclear to me how you could even force its liquidation. Financially, shits fly upward, not downward. Losses will contaminate the parent company not the child companies (unless the sub has a structural dependency on the parent). You may have to sell the sub at a heavy discount, which means less recovery for your debt holders. But you would get sued by the debt holders or any minority interest of the sub if you tried to liquidate a healthy sub.
  • arghwhat 3y ago
    A subsidiary is just an asset like any other. When liquidating company, it's assets are split between creditors to pay back the debt. Granted, it's very weird to have the parent die. Normally you have subsidiaries to isolate risk, and even if the problem is the parent I imagine you'd cool the books to shift the debt to a sarificial limited liability subsidiary that can go bankrupt so the business can continue.