However, on Friday afternoon, Evergrande clarified that it did not file a bankruptcy petition and is instead proceeding with offshore debt restructuring. The Chapter 15 filing is seen as a normal part of the restructuring process. The company stated that it intends to continue operations while it works on restructuring its debt.
Bankruptcy protection allows a company to continue operating while it restructures its debt by limiting court cases and debt collections against it.
Janh Chiang, a senior analyst from Trivium China, a Beijing-based research institute, stated that although Evergrande described its Chapter 15 filing as a normal procedure, it also reflects the company’s concerns that complications from lawsuits in various jurisdictions could derail its efforts to overcome the crisis. Therefore, the bankruptcy protection is necessary to protect the company’s interests.
Founded in 1996 by Xu Jiayin, Evergrande experienced rapid growth during the Chinese housing boom by adopting a “borrow-to-build” model, which involved accumulating significant amounts of debt. At its peak, the company had 200,000 employees and was involved in over 1,300 projects across 280 cities, according to its website.
In recent years, Evergrande has become a symbol of China’s real estate crisis.
In 2021, Evergrande defaulted on its debts, amounting to $300 billion in liabilities, triggering a series of defaults among other construction companies. Analysts characterized the Chinese government’s approach to Evergrande as a “controlled demolition,” allowing the company to continue operating while guiding it through a gradual collapse.
Recently, Evergrande revealed losses of $81 billion for 2021 and 2022.
Since the start of China’s real estate debt crisis in mid-2021, companies responsible for 40% of Chinese home sales have defaulted, according to Reuters. This has resulted in unfinished homes, unpaid suppliers, and creditors. Real estate accounts for a quarter of China’s economic growth, and property investment experienced a 7.9% decline in the first half of 2023.
Country Garden, another major developer in China, recently missed payments on its multibillion-dollar debt, causing further concern among home buyers in the world’s second-largest economy.
This story has been updated.
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