China Evergrande Group Seeks Bankruptcy Protection in U.S. Court Amid Property Crisis
China Evergrande Group, one of the world’s largest property developers, has filed for bankruptcy protection in a U.S. court as part of an extensive debt restructuring process. The move comes as concerns over China’s worsening property crisis and a weakening economy continue to grow.
Once considered China’s top-selling developer, Evergrande has become a symbol of the country’s unprecedented debt crisis in the property sector. The industry accounts for approximately a quarter of China’s economy, and Evergrande’s liquidity crunch in mid-2021 put the company in a precarious position.
To shield itself from creditors that may seek legal action or attempt to tie up its assets in the U.S., Evergrande has sought protection under Chapter 15 of the U.S. bankruptcy code. This procedural filing is a necessary step in the restructuring process under U.S. law.
With over $300 billion in liabilities, Evergrande is currently the most indebted property developer in the world. The company’s offshore debt restructuring amounts to approximately $31.7 billion, including bonds, collaterals, and repurchase obligations. It is set to meet with creditors later this month to discuss its restructuring proposal.
The crisis in the Chinese property sector has resulted in several other developers defaulting on their offshore debt obligations, leading to incomplete housing projects, plummeting sales, and a loss of investor confidence. This situation poses a significant risk of contagion, which could further destabilize an already weakened economy. China’s domestic consumption, factory activity, and employment rates have been on a downward trend, while weak overseas demand adds to the challenges.
As a result of the property market crisis and the absence of substantial stimulus measures, global markets have been affected, with Asian shares experiencing a weekly loss, and China’s growth forecast for this year being revised downwards by major brokerages. Morgan Stanley now predicts China’s gross domestic product (GDP) to grow by 4.7% this year, down from its earlier forecast of 5%.
To address the deepening property market crisis, China’s central bank has reiterated its commitment to adjusting and optimizing property policies. Since mid-2021, when Evergrande faced financial turmoil, approximately 40% of Chinese home sales have been from companies grappling with similar issues.
While Evergrande announced an offshore debt restructuring plan in March, aiming to resume operations and generate cash flow gradually, its current focus is on gaining creditor support to complete the process. An affiliate of the company, Tianji Holdings, has also sought Chapter 15 protection in a Manhattan bankruptcy court.
Trading for China Evergrande shares has been suspended since March 2022, with associated companies such as Evergrande Services and China Evergrande New Energy Vehicle Group experiencing significant stock price declines.
As the property crisis in China continues to unfold, the country’s authorities face challenges in stabilizing the market. The government has signaled possible lending rate cuts to revive credit demand and support the struggling property sector.
China’s economic and property woes, coupled with the inadequacy of clear stimulus measures, have reverberated through global markets. Investors are closely watching developments in the world’s second-largest economy, as the outcomes will have far-reaching implications.
