Evergrande, a Chinese real estate mogul, seeks bankruptcy protection in the US

As concern about China’s growing real estate crisis and deteriorating economy intensifies, troubled developer China Evergrande Group has applied for protection from creditors in a U.S. bankruptcy court as part of its debt restructuring procedure.

The corporation filed for Chapter 15 protection under the U.S. Bankruptcy Code, which protects foreign businesses that are going through reorganization from creditors who want to sue them or seize their assets here in the country.

According to two persons with knowledge of the situation, the file is procedural in nature, but the world’s most indebted property developer, who has more than $300 billion in obligations, is required to make it as part of a restructuring procedure under U.S. law.

Bonds, collateral, and buyback commitments totaling $31.7 billion are included in the developer’s offshore debt restructuring.

Due to the sensitivity of the subject, the sources requested anonymity.

Evergrande chose not to respond.

Evergrande, once China’s top-selling developer, became the face of the nation’s historic debt problem in the real estate industry, which makes up almost a quarter of the GDP, in the middle of 2021.

Since then, a number of Chinese real estate developers have fallen behind on their responsibilities under their offshore loans, abandoning unfinished properties, suffering from declining sales, and losing investor confidence, dealing a blow to the second-largest economy in the world.

The financial contagion risk that has been stoked by the property sector crisis may destabilize an already fragile economy that is being eroded by sluggish domestic demand, weakening manufacturing output, growing unemployment, and poor international demand.

Country Garden, the biggest private developer in the nation, is the latest to warn of a suffocating cash shortage after a major Chinese asset management missed payments deadlines on several investment packages.

All of this occurs at a time when new building, house sales, and real estate investment have declined for more than a year.

This week, Morgan Stanley lowered its prediction for China’s growth for this year, joining other top international brokerages in doing so. The gross domestic product (GDP) growth rate for China is currently projected to be 4.7%, down from an earlier estimate of 5%.

Restructuring of debt

Evergrande revealed a proposal to restructure its offshore debt in March, anticipating that it would make it easier to gradually resume operations and generate cash flow. It is now securing creditor backing to finish the process.

Later this month, Evergrande’s creditors will vote on its restructuring plan; if approved, Hong Kong and British Virgin Islands courts might rule on it in the first week of September.

On Thursday in Manhattan bankruptcy court, Tianji Holdings, a subsidiary of the developer, also requested Chapter 15 protection.

Evergrande said that it was requesting recognition of restructuring discussions taking place in Hong Kong, the Cayman Islands, and the British Virgin Islands in a file with the bankruptcy court in Manhattan.

The business suggested setting the hearing for Chapter 15 recognition on September 20.

Another Chinese developer, Modern Land (China) Co. Ltd, filed a petition in New York for Chapter 15 bankruptcy recognition in June of last year after missing payments on offshore bonds that were due in October of 2021.

Since March 2022, trading in China Evergrande shares has been halted. Friday saw a more than 12% decline in Evergrande Services stock as well as an 8% decline in China Evergrande New Energy Vehicle Group.