China’s property giant Evergrande files for bankruptcy protection in Manhattan court

China’s heavily indebted property giant Evergrande Group on Thursday filed for Chapter 15 bankruptcy protection in a U.S. court.

In a filing with the Manhattan bankruptcy court، the company referenced restructuring proceedings in Hong Kong، the Cayman Islands and the British Virgin Islands.

In a separate statement، Evergrande on Friday said that it will ask the U.S. court for “recognition of the schemes of arrangement under the offshore debt restructuring for Hong Kong and the British Virgin Islands.”

Normal procedure

It added، “The application is a normal procedure for the offshore debt restructuring and does not involve bankruptcy petition.”

The world’s most indebted property developerdefaulted in 2021and announced an offshore debt restructuring programin March. Trading of Evergrande shares have been suspended since March 2022.

Chapter 15 bankruptcyprotection allows a U.S. bankruptcy court to intervene in cross-border insolvency case involving foreign companies that are undergoing restructuring from creditors. It aims to protect the debtors’ assets and facilitate the rescue of businesses that are in financial trouble.

Tianji Holdings، an affiliate of Evergrande، and its subsidiary، Scenery Journey، also filed for Chapter 15 protection in Manhattan bankruptcy court، according to the filing.

Property sector fallout

Evergrande’s filing comes amid contagion fears thatChina’s property sector troublescould spill over to other parts of the economy،which has already seenfaltering growth.

Most recently، Country Garden، which used to be one of China’s largest developers، struggled to makecoupon paymentson U.S. dollar-denominated bonds and issueda profit warning.

The firm has alsosuspended tradingin at least 10 of its mainland China-traded yuan bonds، according to Reuters.

Massive real estate market

China’s massive real estate sector has long beena vital engine of growth for the world’s second-largest economy، and accounts for as much as 30% of the country’s gross domestic product.

Despiterecent policy signals،investor worries linger.In late July،its top leaders indicated a shifttoward greater support for the property sector، paving the way for local governments to implement specific policies.

In July،Evergrandeposted a combined lossof $81 billion over the past two years، after struggling to finish projects and repay suppliers and lenders.

Net losses for 2021 and 2022 were 476 billion yuan ($66.36 billion) and 105.9 billion yuan ($14.76 billion)، respectively، as a result of property write-downs، return of lands، losses on financial assets and financing costs، the company said.

The bankruptcy filing was signed by Jimmy Fong، who listed himself as a “foreign representative” of China Evergrande Group. A “scheme creditors” meeting is set for Wednesday at the Hong Kong office of Sidley Austin، the U.S.-based law firm representing Evergrande، the petition added.