China Evergrande – the world’s most heavily indebted property developer – has filed an application with a bankruptcy court in New York to protect its assets from claims by creditors.
The company sought legal protection via Chapter 15 of the US bankruptcy code, which shields non-US companies that are undergoing restructurings from creditors that hope to sue them or tie up assets in the US.
It its filing to the court, Evergrande said it was seeking recognition of restructuring talks underway in Hong Kong, the Cayman Islands and the British Virgin Islands.
The developer’s offshore debt restructuring involves a total of $31.7 billion, which includes bonds, collateral amounts and repurchase obligations.
An affiliate, Tianji Holdings, also sought Chapter 15 protection on Thursday in Manhattan bankruptcy court.
A lawyer for Evergrande did not immediately respond to requests for comment.
Evergrande’s filing comes amid growing fears that problems in China’s property sector could spread to other parts of the country’s economy as growth slows.
Since the sector’s debt crisis unfolded in mid-2021, companies accounting for 40% of Chinese home sales have defaulted.
Once China’s top-selling developer, Evergrande has become the poster child of the country’s unprecedented crisis in the property sector, which accounts for roughly a quarter of the economy.
The property sector crisis has also fanned financial contagion risk, which could have a destabilizing impact on an economy already weakened by tepid domestic consumption, faltering factory activity, rising unemployment and weak overseas demand.
A major Chinese asset manager missed repayment obligations on some investment products and warned of a liquidity crisis.
Property crisis drags down growth forecasts
Meanwhile, Country Garden, the country’s largest private developer, has become the latest victim of declining sales. The group, which has debts of about $192 billion, is seeking to delay repayments due next month after missing interest owed on notes last weekend.
All of this comes at a time when property investment, home sales, home prices and new construction have contracted for more than a year.
Morgan Stanley this week followed some of the major global brokerages to cut China’s growth forecast for this year. It now sees gross domestic product (GDP) growing 4.7% this year, down from an earlier forecast of 5%.
Evergrande recently had total liabilities of $330 billion. A late 2021 default triggered a string of defaults at other builders, resulting in thousands of unfinished homes across China.
Evergrande creditors to vote on rejig plan later this month
Evergrande announced an offshore debt restructuring plan in March, expecting it to facilitate a gradual resumption of operations and generation of cash flow. It is now gathering creditor support to complete the process.
Evergrande’s creditors will vote later this month on its restructuring proposal, with possible approval by Hong Kong and British Virgin Islands courts in the first week of September.
The company proposed scheduling a Chapter 15 recognition hearing for September 20.
In June last year, another Chinese developer, Modern Land (China), which missed payments on its offshore bonds that were due in October 2021, filed a petition for recognition under Chapter 15 of the bankruptcy code in New York.
Last month, Evergrande posted a combined $81 billion loss for 2021 and 2022, prompting investor worries about the viability of a debt restructuring plan it proposed in March.
On Monday, its electric-vehicle unit China Evergrande New Energy Vehicle Group announced its own proposed restructuring.
That plan called for a $2.7 billion debt-for-equity swap, and a nearly $500 million share sale that would give Dubai-based automaker NWTN a 27.5% stake.
Evergrande NEV’s combined 2021 and 2022 loss was nearly $10 billion.
Trading in China Evergrande shares has been suspended since March 2022. Shares of Evergrande Services dropped by more than 9%, while China Evergrande NEV stock plunged 16% in Hong Kong on Friday.
- Reuters with additional editing by Jim Pollard
NOTE: This report was updated on August 18, 2023 when further details emerged.