Due to $335 billion in debt, the massive Chinese real estate developer Evergrande Group has filed for bankruptcy in the United States.
On Thursday, the firm filed for Chapter 15 bankruptcy protection in a New York court. While renegotiating debt restructuring in their home country, overseas corporations can keep their U.S. assets safe under Chapter 15.
Following in the footsteps of rival Chinese developer Country Garden, Evergrande has filed for bankruptcy after failing to make loan payments and defaulting on $200 billion in debt. As China’s economy slows, the housing market is showing increasing signs of stress, as evidenced by the filings.
Evergrande, formerly China’s biggest developer by sales, is now floundering under a mountain of debt. In August, management confirmed that talks with creditors and restructuring efforts were underway. After a six-month hiatus, trading resumed in March, but the company’s Hong Kong-listed stock still fell 87%.
For many years, Evergrande prospered thanks to creator Hui Ka Yan’s daring business strategy. Pre-sales of flats were crucial to the company’s ability to fund its large building projects across China. Evergrande was left with hundreds of incomplete developments and angry consumers when the property market cooled as a result of tight “zero-Covid” restrictions.
Evergrande will have presold over 720,000 unfinished units by the end of 2021. According to industry experts, Hui and the other executives at the company ran a Ponzi scam by luring in customers with promises they had no intention of fulfilling.
Sun Guoyu, chairman of Shenzhen Neteye Holdings, remarked, “These real estate tycoons are making a lot of money, but the company is in a mess.” As the saying goes, “the money goes into their pockets and the mess is the government’s.”
Many Chinese are concerned that Evergrande’s problems will cause the economy as a whole to suffer. “The severe winter of the real estate industry has come,” An Guanglu wrote. Let’s see who makes it through this.