China’s heavily indebted property developer Evergrande group has made a significant move by filing for Chapter 15 bankruptcy protection in a U.S. bankruptcy court. The filing, made to the Manhattan bankruptcy court, seeks recognition of ongoing restructuring talks in Hong Kong, the Cayman Islands, and the British Virgin Islands. Evergrande, the world’s most indebted property developer, defaulted in 2021 and initiated an offshore debt restructuring program in March. This latest development raises concerns about the potential fallout in China’s property sector and its impact on the broader economy, which has already been experiencing sluggish growth.
The Chapter 15 bankruptcy protection allows a U.S. bankruptcy court to intervene in cross-border insolvency cases involving foreign companies undergoing restructuring from creditors. Its purpose is to safeguard the debtors’ assets and facilitate the rescue of financially troubled businesses. Tianji Holdings, an affiliate of Evergrande, and its subsidiary Scenery Journey, have also filed for Chapter 15 protection in a Manhattan bankruptcy court. The filing comes at a time when fears of contagion are mounting, with worries that the troubles in China’s property sector could spill over to other areas of the economy. This sector has long been a crucial driver of growth for the world’s second-largest economy, accounting for up to 30% of its gross domestic product.
Evergrande Group Files for Chapter 15 Bankruptcy Protection in the US
China’s heavily indebted property developer Evergrande Group has filed for Chapter 15 bankruptcy protection in a U.S. bankruptcy court, according to a filing to the Manhattan bankruptcy court. The company is seeking recognition of restructuring talks that are currently underway in Hong Kong, the Cayman Islands, and the British Virgin Islands. Evergrande, which is the world’s most indebted property developer, defaulted in 2021 and announced an offshore debt restructuring program in March. Trading of Evergrande shares has been suspended since March 2022.
Chapter 15 bankruptcy protection allows a U.S. bankruptcy court to intervene in cross-border insolvency cases involving foreign companies undergoing restructuring from creditors. Its purpose is to protect the debtors’ assets and facilitate the rescue of businesses facing financial difficulties. Tianji Holdings, an affiliate of Evergrande, and its subsidiary Scenery Journey have also filed for Chapter 15 protection in a Manhattan bankruptcy court.
The filing by Evergrande comes at a time when there are concerns about contagion in China’s property sector, with worries that its troubles could spill over to other parts of the economy. Country Garden, another major Chinese developer, recently struggled to make coupon payments on U.S. dollar-denominated bonds and issued a profit warning. The company has also suspended trading in at least 10 of its mainland-China traded yuan bonds.
China’s real estate sector has traditionally been a vital engine of growth for the country, accounting for as much as 30% of its gross domestic product. Despite recent policy signals indicating greater support for the property sector, investor worries persist. In July, Evergrande reported combined losses of $81 billion over the past two years due to difficulties in completing projects, repaying suppliers and lenders, and property write-downs.
The bankruptcy filing was signed by Jimmy Fong, who listed himself as a "foreign representative" of China Evergrande Group. A meeting for scheme creditors is scheduled for Wednesday at the Hong Kong office of Sidley Austin, the U.S.-based law firm representing Evergrande.
In conclusion, Evergrande’s filing for Chapter 15 bankruptcy protection in the U.S. highlights the ongoing challenges faced by China’s heavily indebted property sector. The potential contagion effects on the broader economy and investor concerns about the sector’s stability are key issues to watch in the coming months.
