On Thursday, China's extensively indebted real estate developer, Evergrande, officially lodged a petition for Chapter 15 bankruptcy protection within a United States court.
Through a formal submission to the bankruptcy court in Manhattan, the company requested acknowledgment of the ongoing discussions regarding its restructuring that are taking place in Hong Kong, the Cayman Islands, and the British Virgin Islands.
In 2021, the property developer with the highest level of indebtedness globally faced a default situation and revealed an offshore debt restructuring initiative in March. Trading of Evergrande's stocks has remained suspended since March 2022.
The enactment of Chapter 15 bankruptcy protection empowers a U.S. bankruptcy court to engage in cases of cross-border insolvency, particularly involving foreign corporations undergoing restructuring procedures led by creditors. Its primary objective is to safeguard the assets of the debtors and facilitate the revival of businesses grappling with financial distress.
Tianji Holdings, an affiliate of Evergrande, and its subsidiary, Scenery Journey, also pursued Chapter 15 protection within the confines of a Manhattan bankruptcy court, as confirmed by the filed documents.
Evergrande's submission arrives amidst growing concerns of a contagion effect, wherein the challenges within China's real estate industry could potentially extend their impact to various sectors of the economy, which is already grappling with sluggish growth.
In the most recent developments, Country Garden, once a prominent player among China's major developers, faced difficulties in meeting coupon payments for bonds denominated in U.S. dollars and released a cautionary notice regarding its profits.
Furthermore, the company has halted trading for a minimum of 10 of its yuan-denominated bonds traded on mainland China, as reported by Reuters.
China's substantial real estate sector has historically functioned as a crucial driver of growth for the world's second-largest economy, contributing up to 30% of the nation's gross domestic product.
In spite of recent policy indications, concerns among investors remain pervasive. Towards the end of July, the highest-ranking leaders signaled a shift towards providing more substantial backing to the property industry, opening the door for local governments to enact targeted policies.
During July, Evergrande reported a cumulative loss of $81 billion over the preceding two years, as it grappled with challenges in completing projects and meeting obligations to suppliers and lenders.
The net losses for both 2021 and 2022 amounted to 476 billion yuan ($66.36 billion) and 105.9 billion yuan ($14.76 billion) respectively. These losses were primarily attributed to property devaluations, land returns, financial asset setbacks, and financing expenses, as outlined by the company.
The application for bankruptcy protection was formally signed by Jimmy Fong, identifying himself as a "foreign representative" of China Evergrande Group. A meeting of "scheme creditors" is scheduled for Wednesday at the Hong Kong office of Sidley Austin, the U.S.-based law firm representing Evergrande, as stated in the submitted petition.
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