Embattled Chinese property developer China Evergrande — the world’s most indebted developer — just filed for bankruptcy protection in the US on Thursday.
This is the latest development in a troubled saga that began when the developer faced a liquidity crunch in 2021. It first defaulted on an offshore dollar bond in December of that year.
Evergrande — which had $300 billion worth of liabilities when troubles first began and saw its liabilities balloon to about $340 billion by the end of 2022 — is seeking protection under Chapter 15 of the US bankruptcy code, according to a Thursday court filing seen by Insider. Chapter 15 protects the US assets of non-US companies undergoing restructurings.
Tianji Holdings, an Evergrande affiliate, also sought Chapter 15 bankruptcy protection on Thursday, per the filing.
Evergrande’s Chapter 15 filing mentions ongoing restructuring proceedings in Hong Kong and the Cayman Islands.
Once China’s second-largest developer, Evergrande faced a liquidity crisis in 2021 that triggered broader concerns about the country’s real-estate sector, which — along with related industries — contributes as much as 30% to the country’s GDP.
Guangzhou-based Evergrande posted a net loss of 105.91 billion yuan, or $14.5 billion, in 2022, compared with a loss of 476.04 billion yuan in 2021, per results filed to the Hong Kong Stock Exchange in July.
Evergrande’s Chapter 15 filing came after years of a debt-fuelled property craze in China. The market was so hot that Chinese developers were taking on huge borrowings to build apartments ahead of demand.
Expectedly, Beijing had been trying to cool the frothy market for years. In August 2020, authorities started cracking down on the sector by introducing the so-called “three red lines” policy regulating debt ratios for property developers.
The debt limits worked — but it started sending the property sector into a crisis in 2021 when Evergrande ran into a debt spiral. Other Chinese real-estate developers ran into similar issues, and the sector started to default on its bond payments.