On Thursday, China’s Evergrande Group, formerly the second-largest real estate developer in the nation, filed for bankruptcy in New York.
The struggling company borrowed a lot of money and went into default in 2021, causing a severe real estate crisis that is still having an impact on China’s economy.
Evergrande requested Chapter 15 bankruptcy protection, which enables a US bankruptcy court to intervene in international bankruptcy cases. The purpose of Chapter 15 bankruptcy is to encourage collaboration between US courts, debtors, and foreign courts participating in international bankruptcy proceedings.
The real estate developer has had difficulty repaying its debt, which totaled 2.437 trillion yuan ($340 billion) by the end of last year, or around 2% of China’s whole GDP.
Tianji Holdings, an affiliate, also for Chapter 15 protection on Thursday in a bankruptcy court in Manhattan.
Requests for comment from an Evergrande lawyer did not immediately elicit a response.
Evergrande’s petition comes as concerns about the potential for difficulties in China’s real estate market to affect other aspects of the nation’s economy as development slows mount.
Companies responsible for 40% of Chinese house sales have defaulted since the sector’s financial crisis began in mid-2021.
According to Evergrande, creditors may be able to vote on a reorganization this month, with Hong Kong and the British Virgin Islands courts possibly approving it in the first week of September.
The business suggested setting the hearing for Chapter 15 recognition for September 20.
Investor concerns about the sustainability of a debt restructuring plan Evergrande submitted in March were raised last month after the company announced a combined $81 billion deficit for 2021 and 2022.
China Evergrande New Energy car Group (0708. HK), its electric car division, revealed its own proposed restructuring on Monday.
In that proposal, a $2.7 billion debt-for-equity swap and a nearly $500 million share sale were proposed, giving a 27.5% stake to the automaker NWTN (NWTN.O), based in Dubai.
The cumulative deficit for 2021 and 2022 for Evergrande NEV was close to $10 billion.
Additionally, the business said in a filing with the stock exchange last month that it had lost $81 billion of shareholder money in 2021 and 2022.
Evergrande’s 2021 default sparked a more serious crisis in China’s real estate market, harming homeowners and the nation’s larger financial system. Several other significant Chinese developers, including Kasia, Fantasia, and Shimao Group, have defaulted on their obligations since Evergrande’s demise. Recent warnings from Country Garden, another sizable Chinese real estate developer, that it would “consider adopting various debt management measures” have fueled rumors that the firm is getting ready to restructure its debt as it struggles to obtain money.
Evergrande launched the largest debt restructuring plan in Chinese history earlier this year, after waiting patiently to do so. The business claimed that it has “binding agreements” in place with its foreign bondholders about the main details of the proposal.
In a document outlining the plan, Evergrande stated that “the proposed restructuring will alleviate the company’s pressure of offshore indebtedness and facilitate the company’s efforts to resume operations and resolve issues on shore.”
