'Debt bomb' Evergrande goes bankrupt

On August 17, China Evergrande Group, once China's second largest real estate company, filed for bankruptcy protection in the US.

Evergrande filed yesterday under Chapter 15 of the US Bankruptcy Protection Act. The move would allow a US bankruptcy court to step in when there is an insolvency case involving another country. Chapter 15 encourages cooperation among US courts, creditors, and courts of other countries involved in bankruptcy proceedings.

Evergrande, like other Chinese real estate firms, has been in crisis since mid-2021. The cause is said to be Beijing's "three red lines" policy, launched to reduce systemic risk by limit the ability of real estate companies to borrow new.

Evergrande suffered the most, due to abusing financial leverage to develop projects and multi-industry businesses. Its total debt is currently about 2.437 billion yuan ($340 billion). This is equivalent to 2% of China's GDP.

Outside the headquarters of China Evergrande in Guangdong (China). Photo: Reuters

Evergrande once defaulted on its debt in 2021, sparking a real estate crisis in China, which has lasted to the present. In the middle of last month, the company also announced a loss of $ 81 billion in two years 2021 and 2022.

For many months, Evergrande has been trying to implement a debt restructuring plan abroad. In April, it said it had not yet reached the required consensus among creditors to start the scheme.

77% of investors holding Grade A bonds approved. Meanwhile, only 30% of class C bondholders agreed. The company needs at least 75% of each group's bondholders to agree to undertake one of the largest restructurings in China to date.

Last month, the company was approved by the court to hold a vote on the restructuring plan. Meetings are scheduled to take place this month.

After Evergrande, many other real estate giants in China, such as Kasia, Fantasia and Shimao Group also defaulted. Most recently, China's largest private real estate firm - Country Garden - warned that it was "considering many different debt settlement options". This sparked speculation that the company was preparing to restructure debt due to difficulty in raising capital.