A $327 billion problem that will keep China and the world on the edge tomorrow

China faces a litmust test on Monday when the Evergrande Group will once again try to fend off liquidation at court hearings in Hong Kong. 

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

Any order to wind up Evergrande, which has about $327 billion 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 housing industry, which is in a persistent slump that’s dragging on the world’s second-largest economy. 

China has been releasing new measures to shore up the struggling property 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 from the court. 

The December hearing was adjourned after the original petitioner, Top Shine Global Limited of Intershore Consult (Samoa) Ltd., decided not to push for an immediate liquidation. Now a key bondholder group plans to join the petition, Reuters reported on Jan. 24, citing people familiar with the matter. 

Lawyers for the ad hoc group of bondholders, which has said it holds more than $6 billion of the builder’s roughly $19 billion of offshore notes, told Bloomberg in a report that it will “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 with creditors on reaching a concrete debt restructuring plan. 

The poster child of China’s real estate debt crisis is trying to rescue the plan since a slew of setbacks derailed the process in recent months.