Property crisis continues! China South City ordered to liquidate by Hong Kong court; biggest since Evergrande
A Hong Kong High Court has issued a liquidation order for China South City Holdings Ltd., marking the largest Chinese construction company by assets to face winding up since China Evergrande Group.
This court decision exemplifies the ongoing impact of China's property sector crisis on major real estate firms. Despite governmental support measures, residential sales remain subdued, suggesting a delayed recovery. UBS Group AG has revised its earlier optimistic outlook, now anticipating a postponed revival unless Beijing implements additional economic support.
Judge Linda Chan delivered the verdict after the petitioner requested immediate liquidation proceedings.
Despite China South City's plea for an additional opportunity, the judge noted the absence of meaningful advancement in their restructuring plans, according to a Bloomberg report.
Since 2021, Hong Kong courts have issued no fewer than six liquidation orders for Chinese property developers, including Evergrande, whose complex case involved substantial assets and numerous stakeholders.
The execution of China South City's liquidation may encounter difficulties regarding mainland asset seizure.
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Bloomberg Intelligence analyst Andrew Chan noted, "There might not be many offshore assets to liquidate," explaining that the company's primary subsidiaries are based in mainland China.
The firm's legal representative disclosed offshore debt totalling $1.3 billion, with principal bondholders controlling over 31% of this amount, according to the company's lawyer on Monday.
China South City faced disagreements with creditors on multiple fronts.
At a May hearing, creditors expressed their desire for increased involvement from the company's largest shareholder, Shenzhen SEZ Construction and Development Group Co., in debt negotiations.
Shenzhen SEZ provides keepwell deeds for certain dollar bonds of the builder. These agreements ensure the issuer's solvency without explicitly guaranteeing payment, typically helping to reduce investor concerns about risk.
Despite defaulting on dollar notes over a year ago, China South City's bonds were trading at approximately 25 cents as of Monday morning, according to Bloomberg-compiled data.
This contrasts with Evergrande's bonds, which traded just above 1 cent before its January 2024 liquidation. China South City's bond prices exceed those of other defaulted developers, including Country Garden Holdings Co. and Sunac China Holdings Ltd.,
which has completed its second restructuring round.
According to Zerlina Zeng, head of Asian strategy at Creditsights Singapore, the liquidation could be prolonged due to the company's substantial size. "We expect poor recovery on its dollar bonds given limited additional financial support from the largest SOE stakeholder, Shenzhen SEZ Construction," she noted.
The company shares a similar ownership structure with China Vanke Co.,
a significant Chinese developer that received state support in January from local authorities in Shenzhen.
As of December 31, 2024, China South City reported total liabilities of approximately HK$60.9 billion, with cash and bank balances at HK$717.7 million.
Citicorp International Ltd., the trustee of the developer's dollar bonds, initiated the winding-up petition against China South City. Citicorp also filed a separate legal action against Shenzhen SEZ last year.
Trading of China South City's shares was suspended in Hong Kong on Monday.
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