18-Aug-2023
2 mins read
China’s prominent real estate player, Evergrande Group, recently shook the global market as it filed for bankruptcy protection in the United States. We delve deeper into what this means for the real estate industry and global economies.
Evergrande’s US Bankruptcy Filing
On a recent Thursday, Evergrande sought the shield of Chapter 15 of the US bankruptcy code. This particular provision is specifically designed to protect non-US companies from their creditors during restructuring processes. Essentially, it’s a preventive measure against creditors who may intend to sue or seize assets located within the US.
Affiliate Companies Join the Fray
Evergrande isn’t heading this path alone. Its affiliate companies, Tianji Holding and Scenery Journey, also felt the pinch and consequently filed for the same Chapter 15 protection in the Manhattan bankruptcy court.
A Look Back to 2021
Evergrande’s financial woes aren’t new. Back in 2021, with a staggering liability exceeding $300 billion, the company defaulted on its bond payments. This raised alarms about Evergrande and caused panic in the entire real estate industry, leading to a domino effect. Several developers failed to deliver on their housing projects, which sparked widespread protests and mortgage boycotts from agitated homebuyers.
Restructuring Efforts
Evergrande hasn’t been passive about its situation. For several months, the company has been diligently working on an offshore debt restructuring deal. As a part of its proposal, Evergrande offered its creditors an option to convert their existing debt into new company-issued notes or equities in its subsidiaries, namely the Evergrande Property Services Group and the Evergrande New Energy Vehicle Group.
Financial Health Check
To give an idea of the magnitude of the crisis, in July, Evergrande reported a combined net loss of over $113 billion for the years 2021 and 2022. It’s a telling sign of the immense financial challenges the company has been grappling with.
China’s Response
Recognising the potential repercussions of such a large firm’s collapse on the economy, Chinese policymakers have taken proactive measures to stabilise the sector. Efforts include reducing mortgage rates, simplifying regulatory processes, and offering enhanced financial support to real estate developers.