On Thursday, China’s Evergrande Group, previously the country’s second-largest property developer, filed for bankruptcy in New York.
The struggling company borrowed significantly and defaulted on its debt in 2021, causing a severe property catastrophe in China’s economy, which is still being felt today.
Evergrande filed for Chapter 15 bankruptcy protection, which allows a US bankruptcy court to intervene when another country is involved in an insolvency case. Chapter 15 bankruptcy is meant to foster collaboration among US courts, debtors, and courts in other countries involved in cross-border bankruptcy processes.
The ramifications of Evergrande’s bankruptcy
China’s real estate sector has long been seen as an important growth engine in the world’s second-largest economy, accounting for up to 30% of the country’s GDP. However, Evergrande’s default in 2021 sent shockwaves through China’s property markets, harming homeowners as well as the country’s broader financial system.
The company’s failure occurred after Beijing began cracking down on excessive borrowing by developers in an effort to cool surging property prices.
Since Evergrande’s demise, numerous other big Chinese developers, including Kasia, Fantasia, and Shimao Group, have gone bankrupt. Country Garden, another Chinese real estate behemoth, recently warned that it will “consider adopting various debt management measures,” stoking speculation that the company is prepared to restructure its debt as it struggles to generate funds.
The industry’s woes have been exacerbated by the country’s overall economic decline.
A plan for a comeback?
According to its website, Evergrande is a gigantic firm with over 1,300 real estate projects in over 280 locations. The corporation also operates many non-real estate enterprises, including an electric vehicle company, a health care company, and a theme park company.
Evergrande has struggled to repay its debts since publicly defaulting in late-2021. By the end of last year, the property company’s debt was 2.437 trillion yuan ($340 billion). This amounts to approximately 2% of China’s total GDP.
Evergrande also disclosed in a recent stock market filing that it lost $81 billion in shareholder funds in 2021 and 2022.
Earlier this year, the business announced its long-awaited debt restructuring plan, China’s largest ever. The developer stated that it had obtained “binding agreements” with its international bondholders on the plan’s key terms.
Other Chinese developers are likewise mired in the mud as Evergrande fights to restructure. Kaisa defaulted after failing to make a $400 million bond repayment. Country Garden, the country’s largest private developer by sales, failed to make interest payments on two bonds this month.