Chinese property giant Evergrande files for Chapter 15 bankruptcy protection

Evergrande, the heavily indebted Chinese property giant, filed for bankruptcy protection Thursday in New York, raising concerns about ripple effects as China faces slow economic growth and a sluggish real estate sector.

Evergrande is seeking protection from creditors under Chapter 15 of the U.S. bankruptcy code, which applies to insolvency cases involving multiple countries, while it makes efforts to restructure its debt. The filing references upcoming talks happening in Hong Kong and the Cayman Islands. Creditors could vote on a restructuring this month.

On Friday afternoon, Evergrande clarified that it is pressing ahead with offshore debt restructuring and had not filed a bankruptcy petition, which is a formal declaration that a company cannot pay its debts. The Chapter 15 filing is a “normal” part of offshore restructuring, it said in a filing to the Hong Kong Stock Exchange.

Bankruptcy protection allows a company to continue to operate while it restructures by limiting court cases and debt collections against it.

But even though Evergrande describes its Chapter 15 petition as “normal procedure,” Janz Chiang, a senior analyst from Trivium China, a research institute based in Beijing, said “the move also reflects its concern that its efforts to get out of the crisis could be derailed by complications from dealing with several lawsuits in various jurisdictions, which is why it needs Chapter 15 bankruptcy protection.”

Founded by Xu Jiayin in 1996, Evergrande soared to success amid a Chinese housing boom, using a “borrow-to-build” model that involved racking up massive amounts of debt. It at one point employed 200,000 people and had more than 1,300 projects in more than 280 cities, according to its website.

In recent years, Evergrande has become an emblem of China’s real estate crisis.

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In 2021, under the weight of $300 billion in liabilities, Evergrande defaulted on its debts, sparking a string of defaults at other building companies. Analysts described the Chinese government’s approach to Evergrande as a “controlled demolition,” in which authorities allow the company to continue operating as they guide it through a gradual collapse.

Last month, the company disclosed losses of $81 billion over 2021 and 2022.

Since China’s real estate debt crisis began in mid-2021, companies accounting for 40 percent of Chinese home sales have defaulted, according to Reuters. As a result, many homes have been left unfinished and suppliers and creditors left unpaid. Real estate is responsible for a quarter of economic growth in China; property investment declined 7.9 percent in the first half of 2023.

Country Garden, another major developer in China, recently missed payments on its multibillion-dollar debt, further rattling home buyers in the world’s second largest economy.

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