Evergrande applies for bankruptcy protection in the US, claiming to advance offshore debt restructuring

China Evergrande Group, mired in a debt crisis, applied for bankruptcy protection in the United States on Thursday (August 17) local time, causing an uproar. Evergrande clarified in a statement issued on the Hong Kong Stock Exchange on Friday that the company’s application to the U.S. court was part of an offshore restructuring program and did not involve a bankruptcy filing.

According to reports by Reuters and Bloomberg, court documents show that China Evergrande Group applied for Chapter 11 bankruptcy protection in New York under the U.S. Bankruptcy Code. The filing also indicated that the group was seeking recognition of restructuring negotiations for three companies based in Hong Kong, the Cayman Islands and the British Virgin Islands.

Tianji Holding and Scenery Journey, Evergrande affiliates, also filed for bankruptcy protection with the Manhattan bankruptcy court on Thursday under Chapter 15.

Under the above provisions, the U.S. assets of a company undergoing debt restructuring can apply for protection, and creditors cannot sue or seize the company’s assets in the United States.

As the world’s most indebted real estate developer, Evergrande’s move quickly drew attention. It is believed to be the latest sign of the growing and spreading risk of debt default in China’s real estate industry.

Evergrande said in its Friday statement that it has noticed relevant media reports and clarified that the company is currently proceeding normally with its offshore debt restructuring plan.

The statement said that as the group’s U.S. dollar bonds are subject to relevant laws in New York, the company, in accordance with Chapter 15 of Title 11 of the U.S. Code, has applied to the U.S. court for recognition of offshore debt restructuring agreements under the laws of Hong Kong and the British Virgin Islands as part of the normal progression of the offshore restructuring process, and does not involve a bankruptcy filing.

Informed sources analyzed that Evergrande’s bankruptcy protection application is essentially a procedure. Under U.S. law, the world’s most indebted real estate developer must do this as part of the restructuring process.

Evergrande Group has been negotiating with creditors for nearly two years on restructuring after defaulting on its debt in 2021. As of the end of last year, its total loans amounted to 2.437 trillion yuan (RMB, about S$449.2 billion).

Chinese real estate giants have faced funding strains in recent years. In addition to Evergrande, Country Garden, China’s largest private real estate company, failed to pay interest on bonds this month on time, and Far Ocean Group, which has state-owned capital background, also fell into debt default crisis this week. The real estate debt crisis has also led to a series of chain reactions, and China’s asset management giant China Huarong Group has reportedly stopped payments on its wealth management products and will launch debt restructuring work.

Economists believe that risks in China’s real estate industry could spread to broader economic areas, and the government must take strong measures to rescue the faltering real estate industry.

However, regarding the current difficulties in the industry, the Chinese official stressed that they are “periodic problems.” Fu Linghui, spokesman for China’s National Bureau of Statistics, said on Tuesday (August 15) that China’s real estate market is currently “generally in an adjustment phase”, and with the market adjustment mechanism gradually taking effect and optimization of real estate market policies, real estate enterprises’ risks are expected to be gradually resolved.

The central news media Economic Daily also published an article on Friday saying that in recent times, debt risks of some leading real estate enterprises have been exposed to some extent, affecting market expectations. But it must be made clear that the problems are periodic, and with the implementation of policies and the gradual role of market adjustment mechanisms, the market can achieve stable development.

The article said that confidence must be firmly upheld and composure maintained, with sustained efforts on relevant work. At the same time, it must be clearly recognized that the risk resolution process cannot be accomplished in one move, “the market needs to be given some patience”.