Evergrande, a major Chinese real estate developer, has sought refuge by filing for bankruptcy protection in the US. This move is part of a wider effort to restructure its financial obligations with global creditors holding significant bonds.
The crisis began when Evergrande defaulted on its dollar-denominated debts in late 2021. This triggered a chain reaction of liquidity issues in China's real estate sector, denting the country's economic growth and raising concerns for policymakers. The company's overseas liabilities reached approximately $19 billion, according to Bloomberg data.
The turmoil extended to other real estate players. Country Garden, a top private homebuilder, and Zhongrong, an investment group, also encountered missed payments. The collective uncertainty revived worries of a property sector slowdown, typically responsible for a quarter of China's economic activity. This uncertainty compounds existing challenges, including deflation, weak exports, and high youth unemployment.
Evergrande, holding the record as the world's most indebted developer with $340 billion liabilities, recently reported massive losses of $81 billion across 2021 and 2022. Its bankruptcy filing, led by foreign representative Jimmy Fong, hinges on the "Chapter 15" process, facilitating foreign companies' restructuring in the US.
The company is slated to meet with creditors in Hong Kong this month to discuss a restructuring plan proposed in March. This strategy involves offering investors notes tied to Evergrande's Hong Kong-listed subsidiaries.
Numerous Chinese developers faced defaults after Evergrande's collapse, prompting Beijing to focus on unfinished projects instead of extensive bailouts. The nation's real estate dynamics are complex, with buyers often purchasing incomplete apartments. Recent data even showed a drop in new home prices in July.
Zhongrong's failure to meet obligations raised concerns about the shadow finance sector's ties to the struggling property industry. Last May, Zhongrong sued Evergrande over a significant investment.
