(Yicai) Jan. 29 -- Shares of China Evergrande Group, which has CNY2.4 trillion (USD334.2 billion) of debt, dived before a Hong Kong court ordered the troubled real estate giant to be liquidated, marking the largest bankruptcy of a Hong Kong-listed developer.

Before trading of Evergrande’s shares [HKG: 3333] was halted at 10.18 a.m. local time, the stock slumped 21.4 percent to HKD0.16 (2 US cents). Trading in its units China Evergrande New Energy Vehicle Group [HKG: 0708] and Evergrande Property Services Group [HKG: 6666] was also suspended this morning.

The judge said Evergrande had failed to make substantial progress with its debt restructuring plan, so the court ordered the insolvent company to wind up, CCTV News reported today.

Top Shine Global of Intershore Consult Samoa filed a winding-up petition against the Shenzhen-based Evergrande in June 2022 because the builder owed it HKD860 million (USD110 million). But Evergrande asked the court to delay the hearing several times in order for it to prepare a restructuring plan, so the process was extended to this year.

During a compulsory liquidation, all legal proceedings against the company and actions by creditors will automatically be suspended unless the court approves such proceedings to commence or continue, said Huang Lichong, president of Wilson International Capital. 

Directors of the firm will be stripped of their decision-making power and a court-assigned liquidator will be responsible for recovering assets and distributing them to creditors, Huang said. After that, the liquidator will apply to the court to dissolve the company.

Theoretically, receiving a winding-up order does not mean Evergrande will disappear as it can still appeal, but the liquidation process will not be paused, a market source told Yicai.

Huang said Evergrande could still bounce back if it manages to put forward a new restructuring plan with a white knight investor. It is possible to cancel or suspend the compulsory liquidation after obtaining support from the liquidator and submitting the plan to the court and a creditors’ meeting, he said.

But industry insiders said the likelihood of a white knight appearing is not high given Evergrande's massive debt. The firm had a net loss of CNY39.3 billion (USD5.5 billion) in the first half of last year on revenue of CNY128.2 billion (USD17.9 billion), while its liabilities totaled CNY2.4 trillion.

Editor: Emmi Laine