Amidst the turmoil, in China’s property sector, Evergrande Group, which is facing debt has sought Chapter 15 bankruptcy protection in the United States. This move is about restructuring efforts. The company’s struggles have sparked concerns about contagion effects. By taking this step Evergrande aims to safeguard its assets and facilitate business recovery while addressing worries, about how the sector’s troubles might impact the world’s largest economy.
China’s indebted real estate giant, Evergrande Group took the step of filing, for Chapter 15 bankruptcy protection in a U.S. Court on Thursday. In the filing made to the Manhattan bankruptcy court, the company mentioned restructuring proceedings in Hong Kong the Cayman Islands, and the British Virgin Islands.
In 2021 Evergrande, known as the property developer worldwide experienced a default and subsequently announced an offshore debt restructuring program in March. Trading of Evergrande shares has been suspended since March 2022.
Chapter 15 bankruptcy protection enables a U.S. Bankruptcy Court to intervene in border insolvency cases involving foreign companies undergoing creditor-led restructurings. Its purpose is to safeguard debtors’ assets and facilitate business rescues during distress. According to the filing Tianji Holdings (an affiliate of Evergrande) and its subsidiary Scenery Journey also sought Chapter 15 protection in a Manhattan bankruptcy court.
Evergrandes decision to file for bankruptcy comes at a time when concerns are mounting about contagion effects from China’s property sector troubles spreading to areas of the economy already grappling with sluggish growth. Recently Country Garden— one of China’s largest developers—struggled with making coupon payments, on U.S. Dollar denominated bonds and issued a profit warning.
The company has also halted trading at least 10 of its yuan bonds traded in mainland China as reported.
China’s real estate industry, which has always been a driver of growth, for the largest economy globally accounts for about 30% of the country’s total gross domestic product. Despite indications from policymakers concerns among investors persist. Towards the end of July top leaders hinted at an increased focus on supporting the property sector allowing local governments to implement policies.
In July Evergrande recorded a loss of $81 billion over the two years due to challenges in completing projects and repaying suppliers and lenders. The company stated that net losses for 2021 and 2022 amounted to 476 billion yuan ($66.36 billion) and 105.9 billion yuan ($14.76 billion) respectively primarily attributed to write-downs on properties, land returns, losses on assets, and financing costs.
The bankruptcy filing was signed by Jimmy Fong, who identified himself as a ” representative” of China Evergrande Group. A meeting, for “scheme creditors” is scheduled for Wednesday at Sidley Austins Hong Kong office; Sidley Austin is the law firm representing Evergrande based in the United States.
