Offshore Creditors Eye Evergrande's Onshore Assets for Debt Recovery: A Detailed Breakdown
By Xie Yu and Clare Jim
HONG KONG (Multibagger) - Offshore creditors of China Evergrande (HK:) might see a glimmer of hope in recovering their funds if they can demonstrate that the beleaguered property giant is owed money by its onshore subsidiaries. This strategy could potentially elevate their status from mere shareholders to creditors, thus improving their chances of recouping some of the estimated $23 billion in offshore liabilities.
The Legal Pathway for Offshore Creditors
Due to a January liquidation order in Hong Kong, offshore creditors have effectively become shareholders in Evergrande's onshore assets. This legal standing provides them a new avenue to recover their money, particularly from Evergrande's electric vehicle (EV) units and property subsidiaries, which may have outstanding loans extended by the parent company.
"Offshore creditors who can prove Evergrande lent money to these onshore restructured businesses have a legal right to claim back money," said Glen Ho, Deloitte China's national turnaround and restructuring leader. This was evidenced in a similar case involving China Huishan Dairy, where offshore creditors successfully received payouts through the restructuring of onshore subsidiaries.
Critical Dates and Reporting Obligations
Creditors of Evergrande's units, including Evergrande itself if there are outstanding loans, must report details of the money owed before creditor meetings on October 22 for Evergrande New Energy Vehicle (Guangdong) and Evergrande Smart Automotive (Guangdong), and November 14 for Guangzhou Kailong Real Estate.
Challenges and Expert Opinions
Despite these potential avenues for recovery, experts warn that the process will be fraught with difficulties. The Hong Kong court’s designation of offshore shareholders as shareholders of onshore assets is not automatically recognized in mainland China. Additionally, offshore creditors rank below onshore creditors, making the recovery of funds a challenging endeavor.
"The process will be lengthy and it will be hard to navigate the mainland restructuring process," Glen Ho emphasized. A restructuring expert in Hong Kong, who wished to remain anonymous, also noted that the offshore creditors would struggle to recover anything due to their lower ranking.
Potential Conflicts and Legal Complexities
The involvement of both onshore and offshore legal cases could lead to conflicts of interest as different creditor groups vie for the same assets. For example, the reorganization of EV units could disrupt a deal announced in May to sell Evergrande’s stake in the Hong Kong-listed China Evergrande New Energy Vehicle.
The Importance of Transparency and Legal Oversight
Qiao Shitong, a professor specializing in property law at Duke University's Law School, emphasized the importance of involving offshore investors in government-led bankruptcy processes to ensure transparency. "Letting the court handle such complicated cases, and making sure procedures are followed in the spirit of justice, is more important than who gets what," he said.
Analysis: What This Means for You and Your Finances
So, what does all this mean for you? If you're an investor or a stakeholder in any capacity, understanding the complexities of Evergrande's financial turmoil can provide insights into the risks and opportunities in the market. For offshore creditors, the key takeaway is that legal avenues exist for potential recovery, but these paths are fraught with challenges and uncertainties.
For the average person, this case highlights the importance of understanding where your investments are, the legal frameworks that protect them, and the risks associated with international investments. The Evergrande saga serves as a cautionary tale about the complexities of global financial markets and the importance of due diligence in investment.
By focusing on these critical elements, you can make more informed decisions about your financial future, even in the face of such complex and far-reaching financial crises.