The Chinese have filed for bankruptcy protection in the United States, according to official court documents released Thursday. This move is aimed at securing its assets within US jurisdiction as it attempts to orchestrate a comprehensive restructuring plan.
Once a prominent player in the real estate landscape, the embattled Evergrande faced major challenges in 2021 as it became clear that the company was struggling with an overwhelming liability of more than $300 billion (€276 billion).
The plight of Evergrande, one of the country’s largest real estate developers, has become emblematic of the deepening problems within China’s sprawling real estate sector.
This sector, one of the most important in the world, has sparked widespread concern, which some believe could have global repercussions.
The real estate sector is in trouble
Many developers have faced similar problems, resulting in stalled housing projects that sparked protests and even mortgage boycotts from baffled homebuyers.
In the most recent New York legal filings, Tianji Holding and Scenery Journey, Evergrande’s ultimate parent companies, have filed for Chapter 15 protection. This specific chapter provides a framework for addressing multi-country insolvency scenarios.
Evergrande has been working on a debt restructuring strategy for several months and unveiled a proposal earlier this year. The most recent court documents refer to the ongoing restructuring proceedings in Hong Kong.
In July, Evergrande reported net losses totaling more than $113 billion in 2021 and 2022.
Evergrande defaulted on its bond payments in 2021, sparking fears of potential contagion within the financial system.
How is Beijing reacting to the instability of the Chinese real estate sector?
The rise of China’s real estate industry gained momentum in the late 1990s following housing reforms, fueled in part by societal norms that viewed property ownership as a precondition for marriage.
However, the skyrocketing debts accumulated by major industrial players have led Beijing to view this as a significant risk to both China’s and its wider economic well-being.
Since 2020, in an effort to ease the industry’s debt burden, authorities have incrementally imposed stricter conditions on developers’ access to credit, effectively drying up financing options for companies already in debt.
This progression spawned a series of defaults, exemplified in particular by Evergrande, that undermined the confidence of potential real estate buyers and sent shockwaves throughout the industry.
Another company is at risk of not being able to pay its bond payments in the coming month. The company acknowledged “significant uncertainties” regarding the redemption of its corporate bonds.
In recent times, Beijing has made efforts to strengthen the industry by lowering mortgage rates, streamlining bureaucratic procedures and offering more generous loan facilities to developers.
tg/ab (AFP, Reuters)
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