Crunch time in court for Evergrande

China Evergrande Group will once again try to fend off liquidation at court hearings in Hong Kong today.

Eight weeks after the debt-laden developer won a surprise reprieve in the long-running lawsuit, Evergrande has made little progress toward clinching a restructuring agreement with creditors.

On Friday, Evergrande Property Services said there was a risk that income tax was underpaid by about 650 million yuan (HK$713 million) for 2021 and 2022, along with late payment fees, and it may have to rectify the tax filing.

Any order to wind up Evergrande, which has about US$327 billion (HK$2.55 trillion) in liabilities, will likely send ripples through China's financial system at a time when policymakers are trying to stem a stock market rout. It would also further weaken confidence in the sector, which is in a persistent slump that's dragging on the world's second-largest economy.

In addition to the case scheduled to be heard at 9.30 am, the judge, Linda Chan, will conduct a rare hearing on a possible "regulating order" at 2.30 pm. Such orders mean a court would regulate the winding-up process, potentially including appointing a liquidator.

China has been releasing new measures to shore up the sector, including drafting a list of builders that would be eligible for funding support. But there is little indication that Evergrande has benefited at all, more than two years after its default.

In the absence of any last-minute deal with bondholders, Evergrande's fate may rest on the status of the parties seeking a winding-up order.

Last month's hearing was adjourned after the original petitioner, Top Shine Global of Intershore Consult (Samoa), decided not to push for an immediate liquidation. Now a key bondholder group plans to join the petition, Reuters reported on Wednesday, citing insiders.

Lawyers for the ad hoc group of bondholders, which has said it holds more than US$6 billion of the builder's roughly US$19 billion of offshore notes, said after last month's hearing it would "likely" step in if the original petitioner were to walk away.

Any change in the stance of the group, which had previously opposed liquidation, would make it much harder for Evergrande to convince the court that it is making progress on reaching a concrete debt restructuring plan.

Evergrande, the poster child of China's real estate debt crisis, is trying to rescue the plan since setbacks derailed the process. The Shenzhen-based developer scrapped creditor meetings at the last minute in late September, the month its founder and chairman Hui Ka Yan was suspected of committing crimes and placed under police control.

Offshore creditors are demanding controlling stakes in Evergrande as well as its two Hong Kong subsidiaries - Evergrande Property Services Group and China Evergrande New Energy Vehicle Group, Bloomberg News reported last month. Evergrande had earlier proposed 17.8 percent of the parent and 30 percent of each of the subsidiaries.

Top Shine, a strategic investor in its online sales platform, filed the wind-up petition in June 2022. The case became a consolidated class action for other frustrated creditors.

After repeated postponements, Chan called an adjournment in October the "final" one, only to delay a decision again in December when Top Shine balked.