Evergrande: The Crisis That Could Change the World
Evergrande: The Crisis That Could Change the World
Evergrande, once China’s leading property developer, was discovered in 2021 to be grappling with more than $300 billion in liabilities, as the real estate business came under increased scrutiny from government.
Evergrande Group, the embattled Chinese property company, filed for bankruptcy protection in the United States on Thursday, according to court filings, a move that safeguards its US assets while it works to restructure.
Evergrande, once China’s leading property developer, was discovered in 2021 to be grappling with more than $300 billion in liabilities, as the real estate business came under increased scrutiny from government.
The company’s difficulties have come to symbolise the escalating crisis in China’s massive property sector, which accounts for a significant share of the world’s second largest economy, which many fear may spill over abroad.
Several prominent developers have been impacted by the emerging drama, as they have failed to complete housing projects, prompting homeowners to protest and boycott mortgages.
Tianji Holding and Scenery Journey – of which Evergrande is the ultimate holding company – filed for Chapter 15 protection in New York, which provides processes for dealing with insolvency cases involving more than one countries.
Evergrande has been working for months on an offshore debt restructuring deal and released a proposal earlier this year.
The plan allows creditors to exchange their debt for fresh notes issued by the corporation as well as equity in two subsidiaries, Evergrande Property Services Group and Evergrande fresh Energy Vehicle Group.
Evergrande defaulted on its obligations for the first time in 2021, fueling fears of contagion.
The most recent court records mentioned Hong Kong reorganisation proceedings.
According to Yan Yuejin, research director at E-house China R&D Institute, Evergrande’s recent filing is “equivalent to seeking a better debt restructuring.”
“In fact, Evergrande’s business is undoubtedly still in operation.” After all, it bears a significant duty for securing the delivery of pre-sold homes,” he told AFP.
In July, Evergrande reported a net loss of more than $113 billion in 2021 and 2022.
At the end of 2022, the group’s liabilities were about $340 billion, with $85 billion in borrowings. At the time, the developer had approximately $2 billion in cash on hand.
Housing reform in China in the late 1990s triggered a real estate boom, fueled by social norms that regard property ownership as a necessity for marriage.
However, Beijing has recently viewed the large debt accumulated by the industry’s biggest participants as an intolerable risk to China’s financial system and overall economic health.
Since 2020, authorities have gradually tightened requirements for developers’ access to credit in order to minimise the sector’s indebtedness, drying off sources of financing for enterprises who are already in debt.
A collection of defaults followed, most notably Evergrande, undermining potential purchasers’ confidence and reverberating throughout the industry.
Country Garden, another Chinese property giant, now faces a bond payment default next month after stating that there are “major uncertainties in the redemption of corporate bonds.”
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Beijing has recently attempted to boost the sector by lowering borrowing rates, reducing red tape, and providing more loans to developers.
