Chinese Evergrande Files for Bankruptcy Protection in U.S. Court

The beleaguered Chinese construction company Evergrande Group has filed for bankruptcy protection in a U.S. court as part of its debt restructuring, raising concerns about the situation in the Chinese real estate sector and the economy at large.

Once the most successful in sales, Evergrande has become a typical example of an unprecedented debt crisis in the Chinese real estate sector, which accounts for about a quarter of the economy, after facing a liquidity crisis in mid-2021.

The real estate development company sought protection from creditors under Chapter 15 of the U.S. Bankruptcy Code, which protects non-U.S. companies in restructuring from creditor claims hoping to sue them or block their assets in the United States.

The filing is procedural in nature, but this world’s most indebted entrepreneur, with over $300 billion in liabilities, must take this step as part of the restructuring process under U.S. law, said two people familiar with the matter. The sources wished to remain anonymous due to the sensitivity of the issue. Evergrande declined to comment.

Debt Restructuring

Evergrande’s restructuring of foreign debt involves a total of $31.7 billion, including bonds, collateral, and other obligations. Later this month, it will meet with creditors regarding its restructuring proposal.

A number of Chinese real estate entrepreneurs have failed to meet their debt obligations since the onset of the crisis, leaving unfinished homes, recording a sharp decline in sales, and shaking investor confidence in the world’s second-largest economy.

The crisis in the real estate sector has also heightened the risk of spillover problems, which could have a destabilizing effect on an economy already weakened by poor domestic consumption, faltering factory activity, rising unemployment, and weak foreign demand.

Evergrande, one of the largest Chinese asset management companies, has failed to meet obligations on some investment products and has warned of a liquidity crisis, while Country Garden, the largest private developer, is the latest in a series to signal cash flow issues.

All of this coincides with a decline in real estate investment, weaker property sales, and new construction that has now lasted for over a year. In response to the deepening real estate market crisis, the Chinese central bank reiterated that it would adjust and optimize measures related to real estate, according to a recently released report on the implementation of monetary policy in the second quarter.

Since the mid-2021 debt crisis hit the real estate sector, with Evergrande at the center of the turmoil, companies accounting for 40 percent of Chinese real estate sales have failed to meet their obligations, most of which are private entrepreneurs.

Evergrande announced a plan to restructure foreign debt in March, expecting to facilitate a gradual continuation of operations and generate cash flow. It is now gathering creditor support to complete that process. Evergrande’s subsidiary Tianji Holdings also sought bankruptcy protection under Chapter 15 of the U.S. law in a bankruptcy court in Manhattan on Thursday.

In the filing submitted to the bankruptcy court in Manhattan, Evergrande seeks recognition of ongoing debt restructuring negotiations in Hong Kong, the Cayman Islands, and the British Virgin Islands. The company has proposed scheduling a hearing for September 20.