Deletion of BYOH Windows node hangs in Ready,SchedulingDisabled

When deleting a BYOH node in Platform:none, as well as in an Azure IPI cluster the node gets reconciled correctly, however when added back to the cluster it stays in Ready,SchedulingDisabled. When checking the WMCO logs, we can observe the following log:

{"level":"error","ts":"2022-12-14T16:14:31Z","msg":"Reconciler error","controller":"configmap","controllerGroup":"","controllerKind":"ConfigMap","configMap":{"name":"windows-instances","namespace":"openshift-windows-machine-config-operator"},"namespace":"openshift-windows-machine-config-operator","name":"windows-instances","reconcileID":"d66a3142-d52c-43f5-8a42-214ce9c88417","error":"error configuring host with address 10.0.55.21: configuring node network failed: error waiting for k8s.ovn.org/hybrid-overlay-node-subnet node annotation for byoh-2019: timeout waiting for k8s.ovn.org/hybrid-overlay-node-subnet node annotation: timed out waiting for the condition"

And when checking the node's annotation, it is indeed missing:

$ oc get nodes byoh-2019 -o=jsonpath="{.metadata.annotations}"
{"volumes.kubernetes.io/controller-managed-attach-detach":"true","windowsmachineconfig.openshift.io/desired-version":"7.0.0-16f486a","windowsmachineconfig.openshift.io/pub-key-hash":"1df2c166b1c401180523270e9cf6bc2cd2724b9279ea65668a3b95298525a0f5","windowsmachineconfig.openshift.io/username":"wx4EBwMICL6qT+4RY8tgbx4hiRmQdHlwUsHgVGCTVY7S5gG/G5gb/Wzv0JBLhNP9\u003cwmcoMarker\u003ejlmI5ExHPYFrd2Fw6Lxe/6PKEE5/vYAhZ2n1Z2nBIoa1xN1/HEaXhqR2CuXNe7Ez\u003cwmcoMarker\u003eg2Hg+gA=\u003cwmcoMarker\u003e=ubWA"}

Tested in Azure IPI and Platform:None, in both cases the issue got reproduced.

$ oc get cm -n openshift-windows-machine-config-operator 
NAME                                   DATA   AGE
kube-root-ca.crt                       1      10h
openshift-service-ca.crt               1      10h
windows-instances                      2      9h
windows-machine-config-operator-lock   0      6h24m
windows-services-7.0.0-16f486a         2      6h23m
$ oc get clusterversion
NAME      VERSION       AVAILABLE   PROGRESSING   SINCE   STATUS
version   4.12.0-rc.4   True        False         6h48m   Cluster version is 4.12.0-rc.4

1. Deploy a OCP 4.11 cluster with WMCO 6.0.0
2. Add one or two byoh nodes to the cluster
3. Upgrade the cluster to OCP 4.12, and later WMCO to 7.0.0
4. Remove one of the byoh nodes using: oc delete node <byoh-node-id>
5. Wait for reconciliation to bring the node back

The deleted node gets re-added but stays in Ready,SchedulingDisabled and the workloads left in Pending state.

The node gets properly added to the cluster and stays in Ready.