The Chinese real estate industry is shaking: giant Evergrande has declared bankruptcy in a New York court, seeking protection from creditors. The company, once the second largest in the industry in China by turnover, went bankrupt in 2021 due to heavy debt, throwing the Asian giant’s entire real estate market into crisis. And now she has filed for bankruptcy protection under Section 15 of the US Bankruptcy Code, which allows a US bankruptcy court to grant recognition to a bankruptcy or debt restructuring case involving foreign countries.
China Evergrande’s filing for bankruptcy comes amid growing fears that problems in China’s real estate sector could spread to other parts of the country’s economy as GDP growth slows. Since the industry’s debt crisis began in mid-2021, companies that accounted for 40% of home sales in China have gone bankrupt. What’s happening? Chinese real estate activity has been penalized in recent months by the failures of some contractors in astronomical over-indebtedness, a decline in consumer confidence, and a slowdown in the global economy, which has put pressure on Chinese real estate demand and the economy. activity in general.
Ansa writes that Evergrande’s protected bankruptcy attempt in the US marked a turning point in the two-year crisis of the Chinese giant, which was the first major real estate developer to declare financial problems under the weight of more than $300 billion in debt. The move, which includes $31.7 billion in bonds, guarantees and repurchase obligations, came as a bit of a surprise when the group announced Wednesday that it has postponed its creditors meeting on offshore debt restructuring from August 23 to August 28. To allow details to be clarified ahead of negotiations, and to provide creditors with the Hong Kong-registered electric vehicle subsidiary China Evergrande New Energy Vehicle Group (-8% in Hong Kong), Dubai-based and Nasdaq-listed, founded by Chinese entrepreneur Alan Nan Wu. at Nwtn (Zhejiang) Automobile, a mobility products company.
As part of the offer, NWTN will purchase a 27.5% equity stake in Evergrande’s EV unit (at a 63% unit discount in equity values in the deal signed Monday) for approximately $500 million (Hk 3.88 billion) “to support the recovery”. and Evergrande’s business growth”. Having decided to tighten bank loans after the communist leadership’s decision nearly two years ago to curb the rise in systemic debt, the group also got its share of its main real estate business, its 63% subsidiary, Hengda Real Estate: Local media reported The company ended up being targeted by the China Securities Regulatory Commission as it was suspected of manipulation of financial data. Despite not being on the list, Hengda continued to issue bonds and provide financing despite the holding company’s difficulties. It remains to be understood how severe it will be or will be conditioned by bad relations between Washington and Beijing and, above all, how much weight it will put on the Chinese economy, which is in dire straits as it grapples with heavy financial turbulence with risks increasing contagion.
The crisis in Dragon is predominantly affecting the real estate sector, therefore: there are now concerns about a domino effect in international markets. Heavy indebtedness at Chinese real estate giant Country Garden also worries the markets. The group, once considered financially sound, failed to repay and pay back two interest installments on its loans on Monday, and could officially default in September if it doesn’t.
Keep reading on Today.it…
Source: Today IT
Roy Brown is a renowned economist and author at The Nation View. He has a deep understanding of the global economy and its intricacies. He writes about a wide range of economic topics, including monetary policy, fiscal policy, international trade, and labor markets.
