China’s Evergrande Group – once the country’s second-largest property developer – filed for bankruptcy on Thursday in New York.
The troubled company borrowed heavily and defaulted on its debt in 2021, triggering a major asset crunch in China’s economy, which continues to feel the effects.
Filed by Evergrande Chapter 15 bankruptcy protection, which allows US bankruptcy courts to handle a bankruptcy case involving another country. Chapter 15 bankruptcy can help improve cooperation between U.S. courts, debtors, and courts in other countries involved in cross-border bankruptcy proceedings.
Evergrande did not immediately respond to a CNN request for comment.
The impact of Evergrande’s default
China’s real estate industry has been around for a long time A major growth engine in the world’s second largest economy and accounts for 30% of the country’s GDP. But Evergrande’s 2021 default sent shockwaves through China’s property markets, damaging homeowners and the country’s wider financial system.
The company’s default came after Beijing began curbing excessive borrowing by developers in an effort to curb rising house prices.
Since Evergrande’s collapse, several major developers in China, including Cassia, Fantasia and Shimao Group, have defaulted on their loans. More recently, another Chinese real estate firm, Country Garden, warned that it was “considering taking various debt management measures” – prompting speculation that the company may be preparing to restructure its debt as it struggles to raise cash.
The industry’s woes have been compounded by the country’s overall economic slowdown.
Evergrande is a large company with more than 1,300 real estate projects in more than 280 cities. to its website. The company also has several non-real estate businesses, including electric vehicle business, healthcare business and theme park business.
Evergrande has struggled to service its debt after it officially defaulted on its debt in late 2021. The property company’s debt burden reached 2.437 trillion yuan ($340 billion) at the end of last year. This is about 2% of China’s GDP.
Evergrande said in a stock market filing last month that it lost $81 billion in shareholder cash in 2021 and 2022.
Earlier this year, the company unveiled its long-awaited debt restructuring plan, China’s biggest achievement. The developer said it has reached “binding agreements” with its international bondholders on key terms of the project.
“The proposed restructuring will ease the pressure on the company’s offshore debt and help the company resume operations and resolve onshore issues,” Evergrande said in a filing announcing the plan.
As part of the plan, Evergrande said The next three years will focus on returning to normal operations, but that will require $36.4 billion to $43.7 billion in additional funding. The company also warned that without fresh funding, its electric vehicle unit is at risk of closing.
After that, some funding came in. Earlier this week, Dubai-based automobile company NWTN declared A $500 million strategic investment in exchange for an approximately 28% stake in Evergrande’s EV portfolio.