A string of bad business decisions that led to massive debts and default in 2021 have finally driven the Chinese property development firm Evergrande Group to file for Chapter 15 bankruptcy in New York. Company representatives filed the petition on Thursday, August 17th.
Under a Chapter 15 bankruptcy, a US bankruptcy court may intervene should a party in an insolvency case be from another country. This form of bankruptcy has a diplomatic slant to it as it is meant to foster cooperation between the American legal system, their counterparts overseas who are involved in similar proceedings, as well as debtors.
Prior to all this, Evergrande found itself borrowing massive amounts from both domestic and foreign creditors.
In 2021, when the Chinese government began to come down heavily on developers to keep housing prices within reasonable levels, Evergrande defaulted on its largest debt. In turn, this triggered a crisis in China’s housing sector.
Can Evergrande Bounce Back?
As of press time, Evergrande continues to struggle when it comes to paying off its loans. Indeed, the company’s total debt load hit $340 billion as of end-2022 – a figure equivalent to 2% of the country’s total GDP.
Yet, company executives are determined to bounce back even a little at a time. At the beginning of this year, Evergrande officials presented what is considered the largest debt restructuring plan in the history of the Chinese business sector.
According to a company statement, the said plan is meant to relieve the pressure of Evergrande’s overseas debts and to drive its efforts to get back to business. In any case, such restructuring is meant to enable the firm to resume operations by around 2026.
However, insiders say that doing so will entail the infusion of up to $43.7 billion in additional financing.