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Evergrande has long been a symbol of China’s sprawling and struggling real estate sector.
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Evergrande
It filed for bankruptcy protection in the US nearly two years after being caught in a crisis that caused a crisis in China’s real estate sector. More risks, other than developers, are brewing in the world’s second largest economy.
Evergrande Filed for Chapter 15 bankruptcy protection in Manhattan on Thursday — a symbol of China’s sprawling and indebted real estate industry — which by some estimates is 30% of the country’s gross domestic product. Chapter 15 protects foreign companies like Evergrande, whose corporate debt was widely held among Western institutional investors, under the umbrella of US bankruptcy law.
The collapse of Evergrande, which began in September 2021 when it failed to make interest payments on a bond, has rattled global markets and led to a string of failures across China’s real estate sector. Evergrande in July reported a loss of 812 billion yuan ($111.4 billion) for 2021 and 2022. The company’s restructuring, which is largely run nationwide, has been in the works for a long time.
Evergrande’s board of directors said in a statement: “The company has noted the relevant reports of the media and wishes to clarify that the company is proceeding with its external debt restructuring as planned.” “The application is a normal external debt restructuring procedure and does not involve a bankruptcy petition.”
Evergrande’s request for US bankruptcy protection doesn’t come as a shock, but it comes at a time when investors globally are nervous about the debt crisis in China’s real estate sector. Trouble with the property giants – including, most recently, The Greatest Survivor,
country park
(Stock ticker: 2007.HK) – threatens to seep into the broader financial system and occurs when the world’s second largest economy is in the midst of a slowdown.
Country Garden last week defaulted on interest payments on some corporate debt, warned of huge losses, and halted trading on a batch of mainland Chinese bonds, all of which are troubling. Country Garden’s troubles have brought Chinese real estate back onto investors’ radar, adding pressure to the stock market and exacerbating the downturn in Chinese real estate prices.
Dow Jones Industrial Average
And
Standard & Poor’s 500.
“It is unlikely that the impact of Country Garden’s problems will be as severe as the fallout from the Evergrande default two years ago. Still, with the economy in worse shape now than it was then, even a small blow could be destabilizing,” wrote Julian Evans-Pritchard. , head of China economics at research group Capital Economics, in a note.
Moreover, troubles at Country Garden and other developers increasingly look like they pose a threat to the Chinese financial system, including a shadowy banking giant that has extended credit to the real estate industry. It was reported that units of Zhongzhi Enterprise Group, one of the largest asset management companies in China, missed interest payments last week, With Reuters reports It told investors it was facing a liquidity crisis and had to restructure its debt.
“(Zhonghzi) acknowledged that he was going through a liquidity crisis and took the first steps towards restructuring. This highlights the growing pressure on non-bank financial institutions, many of which are suffering losses on their investments in the real estate sector,” Evans-Pritchard said. The economist added that while shadow banks are under pressure, they are not as significant a systemic threat as some fear.
However, with Hong Kong
Hang Seng Index
Now that a bear market is in and the S&P500 is poised for a third consecutive week of declines – largely due to concerns about China – investors will have to work hard to shake off their fears.
Write to Jack Denton at jack.denton@barrons.com
