The world’s most indebted developer, China Evergrande, was ordered to be liquidated by a Hong Kong court on Monday.

The action would rock China’s already precarious real estate and capital markets. A procedure like this could be difficult, with political factors to take into account because there are numerous authorities involved.

A provisional liquidator and subsequently an official liquidator will be appointed to assume control and get ready to liquidate the developer’s assets to pay off its obligations as soon as a liquidation order is issued.

If the liquidators concluded Evergrande had sufficient assets or a white knight investor showed up, they might offer a new debt restructuring plan to offshore creditors holding $23 billion in debt in the company.

They might also look into the company’s operations and report any alleged wrongdoing by directors to the prosecutors in Hong Kong.

A liquidation order might be challenged by Evergrande, but the liquidation would continue while the appeal was underway.

Trading in Evergrande’s shares and those of its listed subsidiaries was halted following the liquidation order. A corporation must exhibit a business structure with enough operations and asset values in order to comply with listing regulations.

During a July court hearing in Hong Kong, Evergrande referenced a Deloitte research that projected a 3.4% recovery rate in the event that the developer were liquidated.

However, creditors now anticipate a recovery rate of less than 3% after Evergrande announced in September that the authorities were looking into its chairman Hui Ka Yan and flagship business for unidentified offences.

On Friday, bids for Evergrande’s dollar bonds were placed at about one penny per dollar.

Evergrande’s two units, Evergrande Property Services Group and Evergrande New Energy Vehicle Group, are listed in Hong Kong, with the majority of the company’s assets having been sold or seized by creditors. As of Friday, their aggregate market capitalization was down to $973 million.

Evergrande’s interests in the two units could be sold by a liquidator, however it might be challenging to find purchasers.

Following a liquidation, which might take months or years, the liquidator could replace each subsidiary’s legal representative to seize control of Evergrande’s subsidiaries throughout mainland China.

Since Evergrande’s home city of Guangzhou is not one of the three Chinese cities that mutually recognise liquidation orders with Hong Kong, insolvency experts said it would be difficult for the liquidator to switch representatives.

Even in the unlikely event that a liquidator were to seize control of the companies with onshore projects, many of them would already be in negative equity due to declining real estate values, have been frozen by courts or taken over by creditors.

Even if the developer with $240 billion in assets being wound up would cause ripples in the already unstable capital markets, analysts said it wouldn’t provide a model for how other struggling developers’ liquidations would go.

Several authorities and political concerns would be involved in the process due to the enormity of Evergrande’s projects and debt.

The corporation, the industry, and the government will place a high premium on finishing ongoing home construction projects.

(Adapted from DeccanHerald.com)