China's 2nd largest Real Estate Developer, EVERGRANDE, has been ordered forcibly liquidated by a Hong Kong Bankruptcy Court. This will likely trigger a CRASH and affect Global Markets like COVID-19 - maybe worse.
Evergrande still owes nearly $340 billion to creditors.
What is going to follow will be worth a huge bucket of Popcorn!
STEP 1 - Immediate Actions
1 - The court appoints an official liquidator who takes control of the company.
2 - Trading on Evergrande (3333.HK) stocks will be suspended again.
3 - Evergrande bank accounts will be immediately frozen.
STEP 2 - Liquidation Process
1 - The official liquidator will be required to certify all assets and liabilities of Evergrande.
2 - Creditors will then submit their claims and they will be ranked based on their legal status. So far, 2 types of creditors have been identified, those belonging to Class A (senior dollar notes, Hong Kong dollar-denominated convertible bonds and one private loan) and those belonging to Class C (private loans, repurchase obligations and guarantees provided by the company).
3 - The company liquidator then starts to sell all assets in an orderly manner and through all possible means available to maximize their value.
4 - Employees of the company will all be terminated and their salaries and severances will have the highest repayment priority in the liquidation process.
5 - Once all debts are settled and assets liquidated, the company is formally dissolved and removed from the Companies Register.
Personally speaking, now that the court ruled in favor of a liquidation, the effects of $300bn+ of debt going officially "POOF" will surely leave a bad scar on many banks' loan books across the world.
Furthermore, assuming the accounting rules and risk regulations are applied as they should, banks will not be able to justify any more assets held at book value in their HTM books starting from everything related to Evergrande sphere (not only the company but also its suppliers and customers currently paying a mortgage on homes they will hardly ever live in).
If the debt related to the company itself is $300bn, you can easily add $100-200bn on top of that in terms of overall credit suddenly going "POOF!"
As if all I mentioned wasn't enough, it goes without saying that it will be much harder for other real estate developers in trouble to stay away from the spotlight.
Overall, the credit bust domino that Hong Kong Bankruptcy Court Justice Chan just set in motion could potentially be of biblical proportions and will severely undermine China efforts to convince investors to come back.
Frankly speaking, now that the plug is pulled from Evergrande, this event has all the characteristics to become an avalanche that impacts markets in the same way Covid-19 did. In fact, I will go so far as to say that, in my opinion, we ____could___ see a "BLACK MONDAY THRU FRIDAY" this week in markets.
That will certainly mix well with the Regional Wars around the world.
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