A residential complex built by Evergrande in Huai’an, Jiangsu, China on July 20, 2023.
China’s heavily indebted real estate developer, Evergrande Group, has taken the step of filing for Chapter 15 bankruptcy protection in a U.S. court. The company seeks recognition of ongoing restructuring discussions in Hong Kong, the Cayman Islands, and the British Virgin Islands.
Despite reaching out to Evergrande for comment, CNBC did not receive a response. The company defaulted in 2021 and announced a debt restructuring plan in March, leading to the suspension of Evergrande share trading since March 2022.
Chapter 15 bankruptcy protection enables a U.S. court to intervene in cross-border insolvency cases involving foreign companies undergoing restructuring. The purpose is to safeguard 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, according to the filing.
Property sector fallout:
China’s real estate sector, which accounts for up to 30% of the country’s GDP, has historically served as a crucial driver of growth for the world’s second-largest economy. However, concerns among investors persist despite recent policy signals. In late July, China’s top leaders indicated increased support for the property sector, allowing local governments to implement specific policies.
Evergrande recorded combined losses of $81 billion over the past two years due to difficulties in completing projects, repaying suppliers, and repaying lenders. The company reported net losses of 476 billion yuan ($66.36 billion) in 2021 and 105.9 billion yuan ($14.76 billion) in 2022, primarily attributed to property write-downs, land returns, financial asset losses, and financing costs.
The bankruptcy filing was signed by Jimmy Fong, who identified himself as a “foreign representative” of China Evergrande Group. A “scheme creditors” meeting is scheduled for Wednesday at the Hong Kong office of Sidley Austin, the U.S.-based law firm representing Evergrande, according to the petition.
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