There are titles one likes to brag about. Best of the year, for example. Or related to the economy: most sustainable company of the year. Or most employee-friendly. Often these are nonsense titles, but they sound really great. And then there are titles that are given to you even though you don’t want them. That should be the case with Evergrande: It is considered the most indebted real estate company in the world. The Chinese company has now filed for bankruptcy protection in the United States. Evergrande wants to protect itself from claims by creditors in the United States. That emerges from documents of the bankruptcy court in Manhattan from Thursday. The Bloomberg news agency and other US media previously reported.
Under US bankruptcy law, foreign companies can be protected from lawsuits by American creditors while they restructure in another country. Evergrande has now referred to this.
The Chinese group has been in crisis for some time. According to his own balance sheet data, he has made a loss of 72 billion euros in the past two years. The total debt of what was once China’s largest construction company is 2.4 trillion yuan. That’s the equivalent of 300 billion euros – no other real estate company in the world has a higher mountain of debt. Evergrande has been struggling with its creditors for a long time to reduce this mountain of debt. In January 2022, the group announced a restructuring plan.
In March of this year, Evergrande proposed debt restructuring to creditors at home and abroad. Part of this was the offer to give them shares in the subsidiaries. Among them was the electric car subsidiary Evergrande NEV. China Evergrande shares have been suspended from trading in Hong Kong for more than a year amid numerous investigations.
The real estate crisis in China is also spilling over into other areas
What is difficult to imagine given today’s figures: Evergrande was once the star of the Chinese housing market. Behind the company empire Evergrande is the billionaire Xu Jiayin, who usually calls himself Hui Ka Ya. After his career in a state-owned steel mill, he founded the company in 1996. In doing so, he not only benefited from excellent relations with the Communist Party, but also from the construction boom in China. In 2017 he was recognized by the business magazine forbes named the richest man in Asia.
But the group got into trouble after the real estate bubble burst in China. The construction sector in China had boomed since the late 1990s and has long been the main route to prosperity for millions of Chinese. But many entrepreneurs got more and more into debt. China’s supreme leader Xi Jinping therefore ordered that houses should be used for living and not for speculation. Then, in 2020, the government cracked down on over-borrowing. For example, it restricted real estate companies’ ability to raise money – and thus triggered a series of defaults. Since then, large property developers have repeatedly failed to complete projects. The result is numerous building ruins and bankruptcies. Evergrande is considered a symbol for this real estate crisis.
Concerns about another large Chinese real estate developer have recently increased. Country Garden fell in the stock market after missing two coupon payments on US dollar bonds. Although it is only interest payments in the amount of 22.5 million US dollars. Nevertheless, it was reminiscent of Evergrande, where the problems had started similarly.
The real estate crisis in China is also affecting other economic sectors – such as the financial sector. Zhongrong International Trust, one of the leading providers of the trust funds that are widespread in China, recently admitted to investors “short-term liquidity difficulties”, according to insiders. Many real estate developers had built on the money from the trust funds in their almost unbridled expansion in recent years.