Evergrande Group, one of China’s largest real estate conglomerates, filed for Chapter 15 bankruptcy in New York Friday after failing to make interest payments on $84 million in off-shore bonds. The company reported liabilities of $340 billion against $256 billion in assets. Evergrande Group has been a darling of those tempted to invest in China. Over the past few years, it has branched out from real estate into ventures such as professional sports, entertainment, and finance.
Chapter 15 bankruptcy is similar to Chapter 11, where the debtor is asking for protection against creditors while it attempts to un-f*** its business model and continue with operations. Except with Chapter 15, the company is based in a foreign country and has assets in the United States.
This is not a trivial action. Evergrande’s debt represents 2% of China’s GDP. When you consider that real estate comprises 30% of that GDP, you can see the magnitude of the problem.
As creditors have already seized a $1.6 billion high-rise in Hong Kong owned by Evergrande as well as the Evergrande headquarters and the personal mansion of Evergrande’s Hong Kong chairman, its overseas creditors may be less than inclined to cut a deal when they are uncertain about the ability of Evergrande to survive in China.Keep an eye on Country Garden; it is following the same glide path as Evergrande. It, and several other real estate investment groups, may fail even if Evergrande survives, but they will definitely fail if Evergrande goes under.
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