NEW YORK – China Evergrande Group, the real estate giant whose default two years ago accelerated a broader property debt crisis in the Asian country, sought Chapter 15 bankruptcy protection in New York on Thursday.
The move protects it from creditors in the United States while it works on a restructuring deal elsewhere. The Chinese home builder’s Chapter 15 petition references restructuring proceedings being carried out in Hong Kong and the Cayman Islands.
International debt restructuring deals sometimes require a Chapter 15 filing in the course of finalising a transaction. In 2022, developer Modern Land China also filed for Chapter 15 bankruptcy after failing to repay a US$250 million (S$339 million) bond and saying it would go forward with an offshore debt restructuring deal.
Evergrande’s fate has broad implications for China’s US$60 trillion financial system, and could send ripples across banks, trusts and millions of home owners, in what would be one of the nation’s largest restructurings.
The sheer size of its liabilities of more than US$300 billion means that the process is sure to be long.
Sentiment towards Chinese markets has been shaken in August after one of the country’s biggest property developers, Country Garden Holdings, lurched towards a possible first default amid record debt failures by builders. The situation worsened in recent days when financial conglomerate Zhongzhi Enterprise Group raised alarm after affiliated firms missed payments on some investment products.
China’s property debt crisis is rapidly deepening as it heads into its fourth year. Developers accustomed to binging on debt to fuel development sprees experienced the first inkling of change in 2020. That was when the authorities laid out “three red lines” that set leverage benchmarks builders had to meet if they wanted to borrow more money.
Chinese junk dollar bonds, largely issued by developers, have fallen into distress, with average prices now at about 65 cents, according to a Bloomberg index.
Evergrande has been working for months to wrap up an offshore debt restructuring plan.
The firm in April disclosed it did not yet have the level of creditor support needed to implement the plan.
In July, it received court approval to hold votes on the deal. The company said earlier this week that it had rescheduled so-called scheme meetings for creditors to until Aug 28.
Evergrande first defaulted on a US dollar bond in December 2021 following months of uncertainty about its finances. The company’s struggles helped set off the initial wave of concerns about China’s property sector that has kept growing.
Evergrande’s electric vehicle (EV) unit agreed to sell a roughly 28 per cent stake to Dubai-based start-up NWTN, sending the carmaker’s shares soaring earlier this week on expectations that the deal could keep it in business. NWTN will invest US$500 million in China Evergrande New Energy Vehicle Group in exchange for shares and a majority of the EV maker’s board, the companies announced on Monday.
“Evergrande’s debt plan could be helped by the developer’s disposal (of the stake),” said Bloomberg Intelligence analysts Daniel Fan and Adrian Sim.
NWTN could become the largest shareholder upon full exchange of the unit’s mandatory exchangeable bonds, and the EV unit’s funding access would help the value of those securities in Evergrande’s debt plan as well as normalise production of its Hengchi 5 EVs, they said. BLOOMBERG
