Property developer Evergrande Group, one of the largest players in the Chinese real estate market, filed for Chapter 15 bankruptcy protection in the United States on Thursday, raising concerns about a worsening real estate crisis in China.
The Evergrande Group is the most indebted real estate developer in the world, with liabilities exceeding $300 billion. Evergrande’s $31.7 billion offshore debt restructuring of bonds, collateral, and repurchase obligations, was made known in March 2023.
The filing in a Manhattan court, according to the company, is merely procedural, but it protects the company from creditors hoping to sue them or seize assets in the US while restructuring in Hong Kong, the Cayman Islands, and the British Virgin Islands.
The liabilities of Evergrande reveal China’s extraordinary debt problem in the formerly dynamic real estate market, which makes up around 30% of the nation’s GDP.
Developers first noticed a change in 2020 when the authorities established leverage requirements that builders had to achieve in order to borrow money. Developers had grown accustomed to using loans for growth to fuel the enormous demand for flats.
According to a Bloomberg index, the frequently issued junk dollar bonds were under pressure and dropped to an average price of about 65 cents.
The fate of Evergrande has broad ramifications for China’s $60 trillion financial system and the potential to cause ripples across banks. Since the loan crisis erupted in mid-2021, developers that accounted for 40% of Chinese home sales have defaulted.
Concerns about the country’s real estate market were increased after Country Garden, the largest privately held developer in China, failed to pay two dollar bond coupons that were due on August 6.
Problems in China’s real estate market could affect other aspects of its economy as growth slows. The post-pandemic era lockdowns have been a burden on the second-largest economy in the world.
Since March 2022, trading in Evergrande shares has been halted.
