China Evergrande Seeks U.S. Court Approval for $19 Billion Debt Restructuring

China Evergrande Group is seeking a U.S. court’s approval to restructure more than $19 billion in the company’s offshore debts, as the embattled property developer pushes forward on plans to complete one of the world’s largest and most complex debt restructurings.

China Evergrande, the world’s most indebted property developer, on Thursday filed for chapter 15 bankruptcy in New York, which would recognize and give effect to the offshore proceedings for three Evergrande companies based in Hong Kong, the British Virgin Islands, and the Cayman Islands, respectively.

Court approval of the debt restructuring would make the deal legally binding in the U.S. and would close the door to any disputes against the plan that could be brought in America. Many of China Evergrande’s $19 billion in foreign bonds are governed by U.S. law.

Guangzhou-based China Evergrande, once China’s second-largest developer, has been negotiating for nearly two years to restructure after it defaulted on debt payments in 2021 as it ran out of cash and failed to pay its contractors and suppliers. China’s crackdown on financial risk in the property sector that year led to a sharp drop in home sales, hurting many real-estate developers and shutting them out of debt markets. 

Evergrande’s negotiations with its offshore creditors have dragged on for more than 18 months. Tensions reached a fever pitch after the company disclosed in March 2022 that some of its Chinese bank creditors seized $2 billion that was supposed to remain in offshore bondholders’ control. Some of those creditors expressed concerns that Evergrande’s longtime chairman, Hui Ka Yan, was allowed to keep control of the company even after its collapse. A group of the company’s foreign creditors threatened to liquidate the company’s overseas operations over the loss of the funds.

Overseas creditors eventually agreed to a consensual deal in the spring of this year. Holders of the developer’s $19 billion in foreign debt can choose to swap their holdings into new long-term debt or take some principal losses and get a mix of shorter-term bonds and equity-linked notes backed by shares of Evergrande or two of its listed subsidiaries, including China Evergrande New Energy Vehicle Group.

All of the company’s offshore creditors have until next week to vote on the plan, which requires three-quarters’ support to pass. 

This week, Evergrande released financial results for 2021 and 2022. The company noted that its sales were “at a standstill” after September 2021, when the company started to miss debt payments and creditors began to seize the company’s assets. However, Evergrande stated that the group’s sales have gradually bounced back since last spring.

The conglomerate reported a net loss of 105.91 billion yuan ($14.51 billion) in 2022, compared with a loss of 476.04 billion yuan ($65.4 billion) in 2021, according to its annual 2022 report published Wednesday.

While Evergrande’s default set off initial concerns about China’s property sector, signs of a second wave of distress are emerging. Recent economic data showed waning demand for real estate as a wave of home listings hits the market, and China’s largest surviving property developer, Country Garden Holdings, said it expects to post its worst loss since going public 16 years ago.

Write to Alexander Saeedy at [email protected]