(AsianFin)—China Evergrande said it will work towards a resumption of trading in its shares after receiving guidance from the Hong Kong Exchange (HKEX). The company clarified that trading in its shares will remain suspended until further notice, according to a recent filing.

The resumption guidance outlines several conditions, including the withdrawal or dismissal of the winding-up order against Evergrande, demonstrating compliance with listing rules, and disclosing all material information to the market. Failure to resume trading by July 28 next year could lead to the delisting of Evergrande.

Hengda Real Estate, a mainland subsidiary of Evergrande, has been ordered to pay 150 million yuan (US$21 million), bringing the total enforcement amount to 45 billion yuan.

In a separate development, over 40 property projects in Guangdong have secured loans totaling 4.3 billion yuan under a whitelist mechanism. This initiative involves local governments providing a list of projects eligible for financial support, with coordination with local lenders to fulfill their financing requirements.

In the Hong Kong stock market, stocks that have been suspended for an extended period face the risk of delisting. According to Rule 6.01A(1) of the Listing Rules, the HKEX may delist any securities that have been suspended from trading continuously for 18 months. For Evergrande, which suspended trading from January 29, 2024, due to a liquidation order issued by the Hong Kong High Court, this 18-month deadline will fall on July 28, 2025. With the resumption guidelines now clarified, it implies that China Evergrande must meet all the aforementioned requirements and gain recognition from the HKEX to resume trading and avert the delisting risk.

If Evergrande fails to remedy the issues that led to the suspension of trading, meet the resumption guidelines, and fully comply with the Listing Rules to convince the HKEX by July 28, 2025, the HKEX Listing Division may recommend the delisting of the company. According to Rule 6.01 and Rule 6.10 of the Listing Rules, the HKEX also has the right to give a shorter specified remedy period in appropriate circumstances.

Regarding the received resumption guidelines, China Evergrande stated that the company is taking appropriate measures to address the issues that led to the trading suspension and is fully complying with the Listing Rules to gain the trust and approval of the HKEX. The company will issue further announcements at the appropriate time, following the provisions of the Listing Rules, to inform shareholders and potential investors of the latest developments regarding compliance with the resumption guidelines.

Although Evergrande's announced resumption guidelines only list three conditions, each of them presents significant challenges.

The first condition, withdrawing or lifting the liquidation order, is crucial. Lawyer Wang Yuchen, Director of Beijing Jin Su Law Firm, pointed out that withdrawing a liquidation order typically means that the party making the request or application voluntarily abandons its request or application during the process. On the other hand, lifting the liquidation order usually refers to the termination of legal actions or contracts for certain reasons. This condition implies that the party initiating the request must actively withdraw the liquidation request, or the court must lift the liquidation order.

Many industry insiders indicate that, given the current situation, the probability of withdrawing or lifting the liquidation order is low unless there is a significant turning point. If the first condition cannot be met, Evergrande is likely to face difficulties in resuming trading.

Earlier, liquidator Steven Huang Yongshi said that they would guide Evergrande's business to continue operations, with the primary task being to preserve the value of Evergrande through restructuring or ongoing operations systematically. The winding-up order issued by the High Court only applies to the parent company, China Evergrande Group, and does not directly impact subsidiary companies' operations, especially those operating in mainland China.

As of now, more than a month has passed since the liquidation order was issued, and there have been no public updates on any new developments.

Besides, Evergrande must prove compliance with Rule 13.24 of the Listing Rules, requiring listed companies to maintain a sufficient level of operation or possess assets of sufficient value to demonstrate the justification for continued listing. In other words, China Evergrande needs to demonstrate the stability and sustainability of its business and financial situation.

According to Evergrande's financial reports, as of June 30, 2023, the company's total liabilities amounted to 2.39 trillion yuan, total assets were 1.74 trillion yuan, and net assets were -644.2 billion yuan, indicating a severe insolvency.

According to the latest data released by Evergrande, as of the end of December 2023, Hengda Real Estate had approximately 2978.1 billion yuan in cumulative outstanding debt related to matured debts, and overdue commercial paper amounted to 2050.04 billion yuan. The sum of these two figures indicates a total overdue debt of 5028.14 billion yuan for Evergrande Real Estate.

Additionally, there are more implicit debts, including partially unpaid amounts by Evergrande Wealth Management, overdue borrowings of affiliated companies, ongoing lawsuits, and more. As of the end of December 2023, Evergrande Real Estate had a total of 2073 unresolved lawsuits with amounts exceeding 30 million yuan, and the total amount involved in these cases was approximately 5025.96 billion yuan. Moreover, according to risk information from Tianyancha, Hengda Real Estate currently has 531 instances of enforcement information, with a total amount exceeding 45 billion yuan.

Liu Shui, Director of Corporate Research at China Index Academy, believes that from an operational perspective, Evergrande currently faces high debt, insolvency, operational difficulties, and low stock prices for its listed subsidiaries. In addition, with the controlling shareholder and several executives under investigation, it is challenging to achieve a debt restructuring plan.