World’s Heavily Indebted Developer Evergrande Files for Chapter 15 Shielding in Manhattan Bankruptcy Court as China’s Property Woes Deepen

Amid real estate crisis, China Evergrande files for protection in US bankruptcy court

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Amidst the intensifying property crisis, China Evergrande, the emblematic figure of the country’s property debacle, has embarked on a significant move by seeking Chapter 15 safeguarding in a Manhattan bankruptcy court. This landmark decision serves as a pivotal step for the most indebted property developer globally, shielding it from creditors during its restructuring process. The move is part of an intricate $32 billion debt overhaul as concerns escalate about the faltering property market and China’s weakening economy.

Embattled developer China Evergrande has filed for protection from creditors in a US bankruptcy court as part of its debt restructuring process, as anxiety grows over China's worsening property crisis and a weakening economy https://t.co/lF4Fmise6e
— Reuters (@Reuters) August 18, 2023

Evergrande’s filing signifies an attempt to shelter itself under the protective provisions of Chapter 15 of the US bankruptcy code, designed for non-US companies navigating restructurings. This action seeks to thwart potential lawsuits from creditors and safeguard assets in the United States. Notably, Evergrande’s affiliate, Tianji Holdings, also opted for Chapter 15 protection in the same Manhattan court.

This move arrives in the midst of escalating apprehensions that issues plaguing China’s property sector might cascade into broader economic territories as growth slows. The gravity of the situation is underscored by the fact that since the property sector’s debt turmoil began in mid-2021, approximately 40% of Chinese home sales companies have defaulted.

As Evergrande’s struggle deepens, even giants like Country Garden, China’s largest privately-run developer, have missed interest payments, further amplifying investor anxiety. Evergrande’s colossal liabilities of $330 billion have led to a cascade of defaults across builders, leaving countless homes unfinished across China.

In a bid to find a way out of this crisis, Evergrande aims to gain recognition for its ongoing restructuring discussions in Hong Kong, the Cayman Islands, and the British Virgin Islands. A crucial restructuring vote is anticipated this month, with potential approvals from Hong Kong and British Virgin Islands courts in early September.

This strategic move marks a turning point for Evergrande, as the company endeavors to counteract its combined $81 billion loss for the years 2021 and 2022. A ray of hope emerged with Evergrande’s electric-vehicle unit, China Evergrande New Energy Vehicle Group, announcing its restructuring proposal, including a debt-for-equity swap and a share sale.

The implications of this maneuver stretch beyond Evergrande, reflecting the broader challenges faced by China’s real estate market. With several key players grappling to secure financing and complete projects, the sector’s tremors ripple through China’s economy.

China’s economy’s broader picture remains cloudy as it faces deflation and weakened trade prospects. These factors combined with Evergrande’s move signal a complex and uncertain road ahead for China’s financial landscape.