Real estate giant Evergrande has filed for bankruptcy protection in the United States due to the worsening property market crisis in China.
That would allow the heavily indebted Chinese company to protect its US assets thanks to multibillion-dollar deals with creditors.
Evergrande failed to pay their hundreds of billions of US dollars worth of debt in 2021. The incident had panicked the entire global financial market.
The move comes as China’s property market is increasingly troubled. This then adds to concerns about the stability of the second largest economy in the world.
Chapter 15 serves to protect US assets owned by foreign companies while they seek to restructure their debt.
Evergrande has not yet responded to a request for comment from the BBC.
The Evergrande property unit has more than 1,300 projects in more than 280 cities in China, according to information on its official website.
Apart from property, Evergrande also has other businesses which include the development of electric cars and football clubs.
Evergrande has been trying to renegotiate its agreements with creditors after failing to pay debts.
With an estimated debt of more than US$300 billion or more than Rp4,500 trillion, Evergrande is a property development company with the largest debt in the world.
Its shares have been suspended from the trading stock market since last year.
Evergrande revealed last month that it had lost more than IDR 1,221 trillion (US$80) over the last two years.
Last week, another Chinese property giant, Country Garden, warned that it also faced potential losses of up to US$7.6 billion during the first six months of this year.
Several major companies in China’s property market are struggling to raise money to complete ongoing development projects.
“The key in this matter is completing unfinished projects because at least that will get some of the financing flowing,” said Steven Cochrane of economic research firm Moody’s Analytics.
He added that many of the homes had been sold before they were built but if construction stopped, the buyer would no longer have to pay the mortgage.
Therefore, greater financing is borne by the property development company’s finances.
Earlier this month, the Chinese government said that China’s economy had entered deflation as consumer prices declined in July for the first time in more than two years.
Weak economic growth means China is not experiencing the price hikes that destabilized many other countries and prompted their central banks to sharply increase borrowing costs.
The country’s imports and exports also fell sharply last month as increasingly weak global demand threatens recovery prospects for the world’s second-largest economy.
Official figures showed China’s exports fell 14.5% in July compared to a year earlier, while imports fell 12.4%.
Earlier this week, China’s central bank unexpectedly cut key interest rates for the second time in three months, in a bid to boost the economy.
Source : BBC