China Evergrande Group, the world’s most indebted property developer, has filed for bankruptcy protection in the United States in an attempt to restructure its mounting debt. The company made the announcement on Friday, revealing that it had submitted a petition to the US bankruptcy court in the Southern District of New York. The filing stated that Evergrande is seeking assistance under Chapter 15 of the US bankruptcy code, which offers protection to non-US companies undergoing restructuring from potential lawsuits by creditors.
In addition to the bankruptcy protection filing, Evergrande has also requested that the US court approve its debt restructuring plans for Hong Kong and the British Virgin Islands. As the company’s dollar notes are governed by New York law, it is crucial for the court to approve these schemes. Evergrande assured stakeholders that it is moving forward with its offshore debt restructuring as originally planned. The company has requested a Chapter 15 recognition hearing to be scheduled for September 20.
The offshore debt restructuring program, which Evergrande initiated back in March, amounts to approximately $31.7 billion. This includes bonds, collateral, and repurchase obligations. The company is currently working to gain support for the restructuring process and has plans to meet with creditors later this month.
Evergrande’s financial struggles began in late 2021 when it first defaulted. Since then, it has faced difficulties in completing projects and repaying suppliers and lenders. Research firm Gavekal Dragonomics revealed that the company had pre-sold 720,000 apartments that had not yet been constructed. As of the end of last year, Evergrande’s overall liabilities reached $335 billion. In its most recent results report, the company reported a combined loss of $81 billion over the past two years. These losses were attributed to property write-downs, land returns, losses on financial assets, and financing costs.
The impact of Evergrande’s troubles has also affected the entire Chinese real estate market. Since mid-2021, companies responsible for 40% of the country’s home sales have defaulted on their debt obligations, including Kaisa Group and Shimao Group Holdings. Even Country Garden, China’s largest property developer by revenue prior to this year, reportedly faces the risk of default in the coming weeks.
Alan Luk, CEO of Winner Zone Asset Management, commented on the situation, stating that the China property sector is like a black hole, dragging numerous developers in since Evergrande’s troubles began two years ago. He added that the central government has yet to introduce strong measures because the problem is too massive to address in one go.
The bankruptcy protection filing in the US marks a significant development in Evergrande’s ongoing efforts to address its financial challenges. The company’s next steps, including the Chapter 15 recognition hearing in September, will determine the path forward for its debt restructuring and financial stability. The outcome will be closely watched by investors, creditors, and the real estate market as a whole.
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