HONG KONG/NEW YORK, Aug. 18 (Reuters) – Troubled developer China Evergrande (3333.HK) plans to launch one of the world’s largest debt restructurings amid growing fears of a deterioration in China’s assets. As part of that, it has filed for bankruptcy protection in a U.S. court. Crisis and weakening economy.
Once China’s top-grossing developer, Evergrande has become a symbol of an unprecedented debt crisis in the real estate sector, which accounts for about a quarter of the country’s economy, as it faces a liquidity squeeze in mid-2021. became.
The developer is seeking protection under Chapter 15 of the U.S. Bankruptcy Code, which protects the non-U.S. company in restructuring from lawsuits and creditors who want to seize U.S. assets.
While the application is procedural in nature, the circumstances suggest that the world’s most indebted real estate developers, with more than $300 billion in total debt, must apply as part of the restructuring process under U.S. law. said two people familiar with the matter.
The source declined to be named, citing the sensitivity of the matter.
Evergrande declined to comment.
Evergrande’s offshore debt restructuring includes a total of $31.7 billion, including bonds, collateral and repurchase obligations. He plans to meet with creditors later this month to discuss a restructuring plan.
Since then, a string of Chinese property developers have defaulted on offshore debt, left homes unfinished, sending sales plummeting, hurting the world’s second-largest economy and shattering investor confidence. Ta.
The real estate sector crisis is also fueling contagion risks, which could have destabilizing effects on an economy already weakened by weak domestic consumption, slowing factory activity, rising unemployment and weak foreign demand.
China’s largest asset manager failed to pay back some investment obligations and warned of a liquidity crisis, while Country Garden (2007.HK), the country’s number one private developer, announced the latest in a stifling cash shortage. issued a warning.
All of this comes at a time when property investment, home sales and new construction have been contracting for more than a year.
Morgan Stanley this week followed some of the world’s biggest brokerages by cutting its growth forecast for China this year. China’s gross domestic product (GDP) is expected to grow 4.7% this year, down from the previous forecast of 5%.
A growing number of economists have warned that China may miss its target of 5% annual growth this year unless the government does more supportive measures to keep growth from slowing.
China’s economic and property woes, plus the lack of concrete stimulus, are sending chills to global markets. Asian stocks (.MIAPJ0000PUS) fell 2.8% for the week, expected to fall for a third consecutive week. China’s blue chips (.CSI300) fell 0.5% and Hong Kong’s Hang Seng Index (.HSI) dropped another 1.3%.
China is expected to cut lending standards in a monthly decision on Monday, with many analysts expecting a significant cut in mortgage reference rates to revive credit demand and boost a struggling real estate sector. there is
debt restructuring
The central bank reiterated its intention to adjust and optimize property policy in response to the deepening property market crisis, according to its second-quarter monetary policy implementation report released this week.
Since the industry’s debt turmoil erupted in mid-2021 with Evergrande at the center of the turmoil, companies responsible for 40% of China’s home sales, mostly private property developers, have defaulted.
China’s second-largest private developer, Longfor Group (0960.HK), said Friday that it had cut its “profitability” in response to shifting supply and demand in the real estate market as developers scrambled to allay investors’ concerns. announced that it will accelerate the structure.
Evergrande announced an offshore debt restructuring plan in March, which it hopes will facilitate a gradual resumption of operations and cash flow generation. We are currently gathering support from creditors to complete the process.
Tenkichi Holdings, an affiliate of the development company, also sought Chapter 15 protection in bankruptcy court in Manhattan on Thursday.
In its filing with Manhattan Bankruptcy Court, Evergrande said it is seeking approval for ongoing restructuring talks in Hong Kong, the Cayman Islands and the British Virgin Islands.
The company proposed to schedule a Chapter 15 certification hearing for Sept. 20.
Last June, another Chinese developer, Hyundai (China) Co., Ltd. (1107.HK), was granted Chapter 15 bankruptcy approval after failing to pay offshore bonds due in October 2021. had applied. New York code.
Trading in China Evergrande has been suspended since March 2022. Shares of Evergrande Service Corp (6666.HK) fell as much as 20% on Friday, while China Evergrande New Energy Vehicle Group (0708.HK) fell as much as 17%.
Reported by Claire Jim in Hong Kong, Jonathan Stempel and Dietrich Knaut in New York and Manya Saini in Bengaluru. Written by Sumeet Chatterjee.Editing: Sri Navaratnam
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