China’s Evergrande Group, one of the world’s most famous developers, has filed bankruptcy in the United States to protect its assets in the country in an attempt to restructure. The group aims to find a way to grab a deal with creditors. Evergrande was once China’s most prominent developer, but it defaulted on more than $300 billion in debt in 2021, which fueled China’s real estate crisis.
On Thursday, Evergrande and its affiliate Tianji Holdings filed for Chapter 15 bankruptcy protection in a New York court. In Chapter 15, there are methods available to handle situations where insolvency cases involve multiple countries. There is a growing concern that China’s property sector problems may arise due to the slowdown in the world’s second-largest economy. As a result, there has been a recent filing related to this issue. Since the debt crisis in the sector began in mid-2021, Chinese companies responsible for 40% of home sales have defaulted.
Investors are concerned about the financial stability of Country Garden, which happens to be China’s biggest privately-owned developer. The company has missed some interest payments recently and mentioned uncertainties regarding the redemption of corporate bonds. It has been reported that Evergrande recently had a massive $330 billion in liabilities. This has caused a ripple effect, resulting in other builders defaulting in late 2021, which has caused thousands of incomplete housing projects across China. It has also raised concerns about the success of overseas mega projects.
Evergrande’s Total Debt Equals 2% of China’s GDP
China is considered the world’s second-largest economy, primarily dependent upon its real estate sector. It is believed as the country’s vital growth engine and accounts for 30% of China’s GDP. The default of Evergrande in 2021 transmitted shock-waves to the whole real estate market and created a condition of uncertainty among homeowners and big investors in the country.
The company’s default occurred due to Beijing’s crackdown on excessive borrowing by developers aimed at controlling the skyrocketing housing prices. It seems like the Chinese real estate industry is facing some significant financial challenges. Several major developers, including Kasia, Fantasia, and Shimao Group Holdings Ltd., have already defaulted on their debts following the collapse of Evergrande. Now, Country Garden may also be in trouble as it considers adopting debt management measures. It’s a tough situation for the industry, and it remains to be seen how it will all play out.
The problems of the Evergrande have added to the economic issues of China. Evergrande is one of the biggest Chinese companies, and according to its website, the company has around 1300 real estate projects in more than 280 cities. In addition to real estate, the company has involvement in many other businesses like the electric vehicle, a theme park, and a healthcare business. Evergrande has tried its best to pay all of its debts after officially announcing its default. By the end of 2022, the company’s debt reached 2.437 trillion yuan (340 billion dollars), roughly making up around 2% of China’s gross domestic product.
The Company Made Procedures To Quickly Recover
Evergrande also revealed in its Stock Market filing that it had lost $81 billion of shareholder money in two consecutive years, 2021 and 2022. At the start of this year, the company released its long-awaited restructuring plan for its debt which is the biggest in Chinese history. The developer has further announced that it has reached a binding agreement with its international bondholders on specific terms
Evergrande revealed in a filing that the proposed restructuring plan would lift the pressure of offshore indebtedness. It would further facilitate and allow the company to resume most of its operations and resolve its onshore issues.
Evergrande has announced that it will try to get to normal operations and resolve all issues in the next three years. Additionally, it would require some extra funds of around $36 billion to $43 billion to approach the safe point. Moreover, the company also warned of the risk of shutting down the electric vehicle unit due to insufficient supplies of funds. Since the agreement, small funds have approached. A Dubia-based automobile company NWTN announced a $500 million strategic investment in Evergrande’s EV group. That investment would be in exchange for a stake of around 28%.