Chinese property giant Evergrande files for US bankruptcy protection

Al Jazeera
Fri, 18 Aug 2023 09:25 UTC

© Bloomberg

Residential buildings developed by Evergrande Group, in Beijing, China

China's Evergrande Group, the world's most indebted property developer, has filed for bankruptcy protection in the United States as it attempts to restructure and reach an agreement with creditors.

Evergrande, once China's top developer, defaulted on its more than $300bn in debt in 2021, becoming a poster child for China's property crisis.

Evergrande, as well as an affiliate Tianji Holdings, filed for Chapter 15 bankruptcy protection in a New York court on Thursday.

Chapter 15 provides mechanisms for dealing with insolvency cases involving more than one country.

The filing comes amid growing fears that problems in China's property sector could spread as growth in the world's second-biggest economy slows.

Comment: It seems the downturn is global, with much of the West sliding in to recession, however it seems some countries will fare the turbulence ahead better than others: 'Crash coming this year', Big Short investor who called 2008 crisis

Since the sector's debt crisis unfolded in mid-2021, companies accounting for 40 percent of Chinese home sales have defaulted.

The health of Country Garden, China's largest privately run developer, is also worrying investors after the company missed some interest payments this month and said there were "major uncertainties in the redemption of corporate bonds".

Evergrande recently had $330bn of liabilities. A late 2021 default triggered a string of defaults at other builders, resulting in thousands of unfinished homes across China and raising questions about megaprojects overseas.

Evergrande, founded in 1996 in the southern province of Guangzhou by Hui Ka Yan, unveiled a proposal for its debt restructuring earlier this year.

The plan offers creditors a choice to swap their debt into new notes issued by the company and equities in two subsidiaries, Evergrande Property Services Group and Evergrande New Energy Vehicle Group.

The latest court documents referenced restructuring proceedings in Hong Kong, the Cayman Islands and the British Virgin Islands.

Evergrande has said creditors may be able to vote this month on restructuring, with possible approval by Hong Kong and British Virgin Islands courts in the first week of September.

In July, Evergrande reported a net loss of more than $113bn in 2021 and 2022.

Housing reform in China during the late 1990s unleashed a property boom.

But amid concern about the potential risks to the financial system and the economy from the massive debt accrued by the industry's biggest players, Beijing began to tighten developers' access to credit in 2020.

That contributed to a wave of defaults, which undermined the confidence of potential buyers and reverberated through the industry.

Beijing has recently sought to support the sector by cutting mortgage rates, slashing red tape and offering more loans to developers.

Comment: The following Twitter/X thread from a month ago provides some insight into the measures China's government has taken to manage and shield itself from the economic turbulence:

100-year-old Henny Kissinger went to China for what reason? It's not about US debt, not about the trade war, not even about Taiwan. In this thread, we find out what Kissinger and Xi discussed behind closed doors, something that will affect us all.

#1/10 The biggest threat to the world is not China, but $31.4 trillion US debt. US bonds price will crash inevitably and nuke many countries' economies. Hundreds of millions of jobs and trillions of dollars in pensions will disappear. Why wouldn't Kissinger ask China to help?

#2/10 When Xi Jinping started his 1st term, he was advised that the Chinese economy couldn't withstand the US bonds crash. China's deleveraging campaign was launched in 2013. It sent the two largest real estate developers to bankruptcy in 2021. Did Xi make a deadly mistake?

#3/10 During my first visit in 2018, everyone in China was in a state of euphoria. Businesses borrowed like crazy to expand. Housing prices were sky-high. Jack Ma was further expanding his empire by giving young Chinese free loans. It was a disaster waiting to happen.

#4/10 By popping its own financial and real estate bubbles, in a controlled manner, the Chinese government defused an economic time bomb. But Western experts say Xi is driving China into the brink of collapse, right?

#5/10 I went shopping for a new condo last week. My agent told me that, yes, local govts had to step in and fund most unfinished building projects. And things weren't great for the last 3 years. But she's busy again. Home buyers are taking advantage of lower housing prices.

#6/10 Here's a gorgeous 100 square meters condo with 3 bedrooms and 2 bathrooms for 1.6 million RMB. But I digress. Back to Kissenger.

#7/10 If a 100-year-old man is going to go on a plane for 14 hours, he'll need a medical team along with him. Kissenger jeopardized his health to travel to China for what reason? It's got to be something about his own legacy.

#8/10 China has spent the past decade insulating itself from the inevitable US bonds crash. It won't be as enthusiastic about saving the US as in 2008. The US economy is near its end. The only exit is war. Kissinger travelled to Beijing to discuss the possibility of war.

#9/10 Kissinger's trip to Beijing has only one purpose - to discuss how to minimize damage when (not if) a war breaks out between China and the US. I hate being so doom and gloom. But here is a Chinese phrase - 危机 Whenever danger lurks, opportunity awaits.