China’s Evergrande Files for US Bankruptcy

Evergrande, China’s real estate construction giant, has filed for US protection from bankruptcy after thirty years of uninterrupted growth.

Just last Thursday, Evergrande filed for US bankruptcy under Chapter 15, which allows foreign companies to temporarily be protected from creditors as they recover finances and restructure debt.

There is some disagreement on exactly how much offshore debt the company has racked up, but it is estimated to be around twenty to thirty billion dollars and, while filing for Chapter 15 is only a formality, it also indicates that the company is not in the position to deal with creditors single-handedly. The hearing for Chapter 15 has been scheduled for September 20th.

Meanwhile, other companies, including Country Garden, have also missed payments and have not yet released data for July, keeping investors on edge. The real estate industry amounts to around a third of the country’s economic activity.

For now, it seems like no bailout is coming from Beijing’s central government. Xi Jinping said in a recent speech: “We must maintain historic patience and insist on making steady, step-by-step progress.”

The Property Market Bubble Has Burst

Since the 1990s, Evergrande has risen to the top of China’s real estate developers and amassed debt for the construction. Demand for housing was growing as China’s economic growth remained in the double digits.

As the one-child policy was interrupted in 2015, it seemed that economic growth would never stop. However, a couple years ago, government policy suddenly changed. In 2021, Xi’s government made a move to put a stop for excessive debt with the population and the rise of housing prices.

This put an end to profit for the real estate giant. In the last few months, China has suddenly lowered interest rates, but economists say this has come too late since the property market has been spiraling since 2020.

What Next for Evergrande?

Evergrande had three hundred billion dollars in liabilities and couldn’t rack up the cash to pay off debt. It went bankrupt in December 2021, with plenty of unsold homes remaining empty. Plenty of pre-sold homes have not been built. A wave of bankruptcies followed, and the real estate market in China has crashed.

Over the last few months, Evergrande stock has lost over eighty percent of its share value, and it is possible that the cost of debt might continue the downward spiral. As the world closes off its borders and the BRICS meet in the following days to redefine their financial market, a giant such as Evergrande has enough offshore capital to keep it tied and dependent on international partners.

The reliability of moving capital worldwide will continue being of utmost importance for companies such as Evergrande.