China Evergrande Group filed for the US Chapter 15 bankruptcy protection on Thursday. The heavily indebted property filed at the Manhattan bankruptcy court, referencing restructuring proceedings in the UK Virgin Islands, the Cayman Islands, and Hong Kong. In the meantime, the company announced in a separate statement that it would propose to the United States for scheme recognition of the offshore debt arrangement for restructuring the British Virgin Islands and Hong Kong.
Evergrande explained that the application marked a typical process for restructuring offshore debt. In simple words, the restructuring application was not connected to the bankruptcy protection bid. The company became the most indebted property developer worldwide after defaulting in 2021. Evergreen later announced plans to restructure its offshore debt program in March 2022. Meanwhile, markets suspended trading Evergrande shares in March 2022.
Bankruptcy protection Chapter 15 enables the United States bankruptcy court to oversee cross-border insolvency matters involving foreign firms undergoing creditor restructuring. The chapter aims to facilitate business rescue and safeguard debtors’ assets facing dire financial challenges. Evergrande’s affiliate, Tianji Holdings, and Scenery Journey, its subsidiary, also filed for protection in the same court.
The protection bid comes as contagion fears rose over China’s property industry’s challenges spreading throughout other parts of the economy amid flattering growth. One of China’s largest developers, Country Garden, recently grappled with coupon payment difficulties and issued a profit warning on United States dollar-denominated bonds. Furthermore, reports indicate that the company suspended trading on about ten Yuan mainland China-traded bonds.
The second-largest economy’s real estate industry has remained a critical long-term growth engine, accounting for up to 30% of China’s gross domestic product. Investors are cautious despite the most recent policy signals. China’s top leaders announced in late July that they would shift towards immense property sector support, enabling local governments to facilitate helpful policies. Evergrande announced an $81 billion combined loss in July 2021.
Overall, the company struggles with repaying lenders & suppliers and completing projects. It recorded a $14.76 billion net loss in 2021 and a $66.36 billion loss in 2021. The net loss resulted from financing costs, financial assets loss, land return, and property write-downs. Jimmy Fong signed the bankruptcy petition, listing himself as China Evergrande Group’s foreign representative. The US-based law firm clarified that scheme creditors will host a meeting on Wednesday at the Sidley Austin office in Hong Kong.
