China Evergrande Group, the real estate giant whose default two years ago accelerated a broader property debt crisis in the country, sought Chapter 15 bankruptcy protection in New York on Thursday. The move protects it from creditors in the US while it works on a restructuring deal elsewhere. The Chinese homebuilder’s Chapter 15 petition references restructuring proceedings being carried out in Hong Kong and the Cayman Islands.
The petition is ‘normal procedure’ since Evergrande’s dollar bonds are governed by New York law, the company said in a Hong Kong exchange filing Friday. The Chapter 15 filing is ‘for recognition of the schemes of arrangement under the offshore debt restructuring for Hong Kong and the British Virgin Islands,’ Evergrande said.
International debt-restructuring deals sometimes require a Chapter 15 petition in the course of finalising a transaction. Last year, Beijing-based developer Modern Land China Co. did the same after failing to repay a $250 million bond and saying it would go forward with an offshore debt restructuring deal.
‘Evergrande’s New York bankruptcy filing should have been widely anticipated given its massive losses and lack of progress in approving a turnaround plan,’ said Brock Silvers, chief investment officer at private equity firm Kaiyuan Capital.
The developer’s fate has broad implications for China’s $60 trillion financial system and could send ripples across banks, trusts, and millions of homeowners, in what would be one of the nation’s largest-ever restructurings. The sheer size of Evergrande’s liabilities of more than $300 billion means that the process is sure to be long.
Sentiment toward Chinese markets has been shaken this month after one of the country’s biggest property developers, Country Garden Holdings, lurched toward a possible first default amid record debt failures by builders. The situation worsened in recent days when financial conglomerate Zhongzhi 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’s when authorities laid out ‘three red lines’ that set leverage benchmarks builders had to meet if they wanted to borrow more money.
