The hugely indebted Chinese real estate firm Evergrande Group has applied for Chapter 15 bankruptcy protection in a US court, which is a big milestone. Hong Kong, the Cayman Islands, and the British Virgin Islands are just a few of the places mentioned in the firm’s petition to the bankruptcy court in Manhattan about continuing restructuring processes.
Despite CNBC’s efforts to contact Evergrande for comment, the business has not yet responded as of the time of publication. Notably, Evergrande, the most indebted real estate developer in the world, stopped paying its debts in 2021 and announced an offshore debt restructuring attempt in March. Since March 2022, trading in Evergrande shares has been suspended.
A U.S. bankruptcy court may intervene in international insolvency proceedings involving foreign firms undergoing creditor-led reorganization thanks to Chapter 15 bankruptcy protection. The goal is to expedite the rescue of financially troubled firms while protecting the assets of debtors.
According to official records, Tianji Holdings, a unit of Evergrande, and its subsidiary Scenery Journey have both requested Chapter 15 protection from a Manhattan bankruptcy court.
Evergrande’s application comes amid concerns that the upheaval in China’s real estate market would spread to other areas of the country’s economy, which has already been dealing with slow growth. Most recently, Country Garden, a previous leading developer in China, struggled to make coupon payments on bonds denominated in dollars and issued a warning about its earnings. Additionally, the business halted trading for at least 10 mainland China-traded bonds using yuan as their currency.
The second-largest global economy’s significant growth engine historically has been China’s robust real estate sector, which accounts for close to 30% of the country’s gross domestic product.
Investors continue to have worries despite recent governmental signs supporting more assistance for the real estate industry. The top leadership of the nation suggested a change toward stronger support for the property domain at the end of July, opening the door for local governments to enact focused policies.
Evergrande announced a cumulative loss of $81 billion over the previous two years in July as a result of project delays and difficulties with supplier and lender payments. The corporation reported net losses of 476 billion yuan ($66.36 billion) and 105.9 billion yuan ($14.76 billion), respectively, in 2021 and 2022. The losses were attributed to property depreciation, land returns, financial asset losses, and financing expenses.
Jimmy Fong, who identified himself as a “foreign representative” of China Evergrande Group, supported the bankruptcy application. According to the petition, a meeting for “scheme creditors” has been set for the next Wednesday at the Hong Kong office of Sidley Austin, the American legal firm that is representing Evergrande.
