China Evergrande gets a reprieve in talks with foreign investors

China Evergrande, once China’s most prolific property developer, has narrowly avoided liquidation.

A Hong Kong bankruptcy judge on Monday gave Evergrande another two months to strike a deal with foreign investors who lost money when the company went bankrupt two years ago with hundreds of billions of dollars in debt. The judge set a new court hearing for January 29.

It was an unexpected development in bankruptcy proceedings filed 18 months ago by an investor trying to get paid by forcing the dismantling of Evergrande. The judge, Linda Chan, had said in October that she was prepared to order Evergrande’s liquidation if the company could not reach an agreement with its creditors on the distribution of the company’s remaining assets.

“We thought the company was going to be liquidated today,” said Neil McDonald, a partner at law firm Kirkland & Ellis, which is legal counsel to the creditors. The investor who originally filed the lawsuit, he said, “changed his position and did not push to liquidate the company, which was a surprise to us.”

For twenty years, Evergrande exemplified China’s embrace of capitalism. It was one of the country’s most successful companies and played a central role in the real estate sector, which powered a third of the country’s economic growth. But years of overexpansion left it financially insecure, and when it went bankrupt it had more than $300 billion in past due accounts.

Evergrande’s bankruptcy has plunged China’s housing market into crisis, leaving many Chinese households despondent about the real estate market, the main source of wealth for most families. As Evergrande’s financial position has deteriorated in recent months, investors expect little in return.

This is a developing story and will be updated.