/cloudfront-us-east-2.images.arcpublishing.com/reuters/NNTHB24YDRKCDCIUA7W2UJHLYI.jpg "Evergrande files for US bankruptcy protection as China economic fears mount")
Evergrande Seeks Protection from Creditors as Part of Debt Restructuring
Embattled developer China Evergrande Group (3333.HK) has filed for U.S. bankruptcy protection as part of its massive debt restructuring efforts. This move comes amid growing concerns over China’s worsening property crisis and its potential impact on the weakening economy. China has taken steps to support the struggling activity, including cutting key interest rates and planned cuts to prime loan rates on Monday, but experts believe more forceful measures are needed to stabilize the economy.
Once the leading developer in China, Evergrande now represents the unprecedented debt crisis facing the country’s property sector, which accounts for about a quarter of the economy. The company has sought protection under Chapter 15 of the U.S. bankruptcy code, which provides safeguards for non-U.S. companies undergoing restructurings from creditors hoping to sue or tie up assets in the United States. While this step is largely procedural, it indicates that Evergrande is nearing the end of its restructuring process after over a year of negotiations with creditors.
As part of its offshore debt restructuring, Evergrande has filed for recognition of schemes of arrangement under the offshore debt restructuring for Hong Kong and the British Virgin Islands. The company’s dollar notes are governed by New York law, hence the filing in the United States. Evergrande plans to hold meetings with creditors later this month to discuss its restructuring proposal, which involves a total of $31.7 billion.
The crisis in the Chinese property market has raised concerns about contagion risks to the financial system and the overall economy. Several Chinese property developers have defaulted on offshore debt obligations, leading to unfinished homes and unpaid suppliers. This has negatively impacted consumer confidence in the second-largest economy. Additionally, the property crisis has exacerbated worries about the already weakened economy, with tepid domestic and foreign demand, declining factory activity, and rising unemployment.
China’s central bank has stated its intention to adjust and optimize property policies in an effort to address the crisis. However, many experts believe that stronger measures are needed to address the magnitude of the problem in the property sector. The absence of concrete stimulus steps has contributed to a decline in global markets, with Asian shares facing a third consecutive week of losses. While Beijing has announced measures to support the stock market, financial markets have been underwhelmed, with concerns about the mounting debt burden.
Overall, China’s debt crisis in the property sector poses significant challenges to both the financial system and the broader economy. The government faces the task of implementing effective measures to stabilize the property market, support economic growth, and address the risks posed by the crisis.