Chinese real estate giant files for bankruptcy protection, here's what it means

Chinese real estate giant files for bankruptcy protection, here’s what it means

EvergreenChina’s second-biggest real estate developer after Country Garden, which is in bankruptcy, made it official that the country’s complex internal restructuring process is in progress. Meanwhile, in the United States, where the company is listed on Wall Street, it has filed a formal request to initiate bankruptcy proceedings. This decision was taken due to the imperative of ensuring the safety of its corporate assets. What is the size of the global debt restructuring operation? 300 billion dollarsA significant portion of which is represented by bonds issued abroad, is proving to be even more complex than initially imagined.

Through an official statement, the company wanted to highlight that it is a standard procedure for loan restructuring Offshore and not to be confused with the actual bankruptcy filing. The statement was issued by the company through an official note and was later reported by Astox Financial News. Evergrande acknowledges the media reports and would like to clarify that the offshore debt restructuring is proceeding with determination as per the pre-determined schedule.

Evergrande, what will the company do now?

Evergrande, after carefully considering the information disseminated through various means of information, has deemed it appropriate to provide more detailed clarification through a written communication sent directly to the Hong Kong Stock Exchange. In this document, the company has strongly emphasized that it is going ahead with the offshore debt restructuring plan unwaveringly, scrupulously following what was initially planned. Furthermore, he wanted to highlight that the petition filed in Manhattan, which is under discussion, is actually standard procedure related to offshore debt restructuring and is in no way synonymous with a formal bankruptcy petition.

The bold initiative taken by the giant real estate company regarding protected bankruptcy in the United States, known by the technical term “Chapter 15”, is primarily aimed at protecting US assets belonging to the company during times of hardship. It is working with dedication on complex debt restructuring. It is undeniable that this choice represents an authentic turning point in the past two years of crisis that Evergrande, a major player in real estate development in China, has faced. The firm was the first major real estate company to deal with a massive debt burden of over $300 billion.

For several months, the group has focused its efforts on Formulation of debt restructuring plan, Which offers substantial conversion of debt into new bonds as well as a significant stake in two subsidiaries, of which the electric vehicle sector is key. The latter area represents a bold attempt by Evergrande to diversify its asset base.

The entire restructuring process is underway at the Hong Kong Financial Center where Evergrande is listed. In July, the group revealed a net impairment loss forecast for the year 2021 and 2022 that exceeded an astonishing $113 billion (about €100 billion).

settlement with court

The situation suddenly intensified just as discussions were underway regarding overall offshore tariffs at $31.7 billion, including bonds, guarantees and repurchase obligations. The development came quite unexpectedly, especially considering that only last Wednesday the group had announced the postponement of the creditors’ meeting to restructure offshore debt. The change included moving the meeting from the date originally scheduled for 23 August to 28 August.

The adjustments made to the plan appeared to be essentially technical in nature and aimed at further refining the details in the wake of negotiations. Further, it was intended to provide “necessary time for weighted assessment” of the latest proposal regarding sale of new shares to creditors. The shares refer to China Evergrande New Energy Vehicle Group, a Hong Kong-listed electric vehicle subsidiary, which suffered an 8% drop in its value in Hong Kong. The offer includes divestment of 27.5% stake in Evergrande’s electric vehicle unit at a 63% discount to the share prices stipulated in the deal signed earlier this week. This transaction includes assignment NWTN (Zhejiang) Automobile, Dubai based company is listed on Nasdaq. Importantly, NWTN was founded by Alan Nan Wu.

According to the proposal, the acquisition by NWTN is intended to support Evergrande’s business recovery and growth process. However, the situation has suddenly changed, raising new concerns about the financial stability of the company and raising questions as to how this development will affect the overall situation.

Real estate market fears domino effect

The Evergrande Group, one of the central figures in the financial scene, was caught in bank loan restrictions imposed by the communist leadership almost two years ago. The move was aimed at reassuring the balance sheets of real estate companies through the implementation of so-called financial “red lines”. However, the focus is now on the 63% owned subsidiary, Hengda Real EstateWhich plays an important role in the heart of its real estate business, but which is now in a serious state of concern.

The development of the situation can be compared to a complex chain game, where Hengda has come to the attention of the China Securities Regulatory Commission, a Chinese financial supervisory body similar to our Consob. This comes after suspicions of manipulation of financial data, according to local media reports, drew the attention of the authorities. Amazingly, despite the lack of a stock exchange listing, Hengda continued to issue bonds and seek financing in the face of adversity.

Another element of uncertainty revolves around the impact this situation will have on the Chapter 15 process, a legal tool used in the United States to protect companies during bankruptcy proceedings. This variable is closely related to the volatility trend Relations between Washington and Beijing, two global players whose relationships influence the international context. In addition, it is necessary to evaluate what impact it will have on the Chinese economy, which is currently facing great difficulties and a wave of financial turbulence that includes increased risks of contagion and still-unpredictable consequences.





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