Chinese real estate giant Evergrande has made a move to seek bankruptcy protection in New York as part of its effort to gain time for restructuring its staggering estimated debt of $300 billion. Over the past 15 years, the company embarked on a spending spree to elevate itself to one of China’s top corporations.
Under Chapter 15 of the U.S. bankruptcy code, which safeguards non-U.S. companies from legal action and asset seizures in the United States, Evergrande filed a petition with a Manhattan federal bankruptcy court.
Evergrande, ranked among China’s ten largest property developers, stated that it aims to secure recognition for its ongoing restructuring discussions in various locations, including Hong Kong, the Cayman Islands, and the British Virgin Islands, as detailed in the submitted petition. The filing also revealed plans for a meeting involving the company’s creditors, scheduled to take place at the Hong Kong branch of Sidley Austin, the U.S. law firm representing Evergrande.
Trading of Evergrande shares on the Hong Kong stock exchange had been suspended since March 2022 following the company’s default on debt interest payments in 2021, totaling $1.2 billion in international loans.
In recent news, Evergrande disclosed that it incurred a substantial loss of $81.1 billion over the past two years, mainly attributed to its effort to fulfill payments to suppliers and lenders while striving to complete an extensive portfolio of over a thousand projects across 280 cities throughout China. The losses, with $66.4 billion in 2021 and $14.7 billion in 2022, were driven by property value declines, financial asset devaluations, and heightened borrowing costs.
This predicament has had far-reaching consequences for China’s real estate sector, a vital economic pillar constituting approximately one-third of the nation’s GDP. As Evergrande’s financial issues unfold, other developers have followed suit, defaulting on debts and leaving numerous unfinished projects scattered across the country.
Since its initial public offering (IPO) in Hong Kong in 2009, Evergrande has significantly diversified, investing billions in various sectors such as tourism, healthcare, finance, electric vehicle manufacturing, infrastructure, entertainment, agriculture, and sports. In 2010, the company even acquired its local soccer club, Guangzhou FC, and later commenced constructing a massive $1.7 billion, 100,000-seat stadium. Regrettably, this ambitious project remains incomplete after being taken over by the government in November 2021.