This article is from the Australian Property Journal archive
THE world’s most indebted developer, Evergrande, has filed for bankruptcy protection in the United States as China’s real estate crisis rolls on.
The move allows the company – which has debts totalling an estimated US$300 billion – to protect its US assets while it hammers out a deal with creditors. It made the Chapter 15 bankruptcy protection filing in a New York court. Earlier this year it had unveiled an offshore debt restructuring agreement proposal.
According to its website, its real estate unit has more than 1,300 projects in more than 280 cities in China. It was once the country’s largest developer by sales.
Evergrande and China’s real estate sector have been in crisis since late 2021, following Beijing’s regulatory crackdown with the introduction of the “three red lines” policy – guidelines on liability-to-asset, debt-to-equity and cash-to-short-term debt ratios. Evergrande shares have been suspended from trade since March 2022, and the company reported a $176 billion net loss over 2021 and 2022.
The crisis has seen developers unable to complete countless housing projects, with protests taking place in response homebuyers engaging in mortgage boycotts. Beijing has rushed to introduce measures to stem the bleeding, including cutting interest rates twice in the past three months, reducing red tape, and being more lenient with loans.
“The key to this issue is to complete unfinished projects because this will at least keep some of the financing flowing,” said Steven Cochrane of Moody’s Analytics.
New home sales by China’s 100 biggest developers slumped by 33% in the year to July. The real estate sector’s woes have flowed into the country’s greater economy, which is grappling with a number of issues. China has fallen into deflation for the first time in over two years, with its exports falling by a larger-than-expected 14.5% year-on-year and imports dropped 12.4%, and youth unemployment sits at a record high.
The sector has already been shuddering this week as developer Country Garden warned of a potential US$7.6 billion first-half loss and suspended trading of onshore bonds after failing to meet bond repayments, leading to its stock price being slashed further to record lows.
Country Garden said its first-half loss was “mainly due to the decrease in gross profit margin of the real estate business and the increase in impairment of property projects as a result of the decline in sales in the real estate industry”.
