Property giant Evergrande Group files for bankruptcy

Embattled Chinese property giant Evergrande Group has filed for bankruptcy protection in the US, after struggling with $468 billion in liabilities.

Chinese property giant Evergrande Group has finally gone bust.

The massive company, which was once China’s second-largest property developer, has filed for bankruptcy in New York.

The company has been caught in a “death spiral” since 2021 with $US300 ($A468) billion in liabilities. The latest move is a last-ditch measure to protects its US assets while it effects a restructuring deal.

Chapter 15 bankruptcy provides mechanisms for dealing with insolvency cases involving more than one country.

The company has been shedding cash since Beijing introduced the “three red lines” guidance in 2020.

This requires developers to submit detailed reports of their financing situation for evaluation by regulators led by People’s Bank of China.

The “three red lines” require that the developers:

1. Have a liability-to-asset ratio (excluding advance receipts) of less than 70 per cent;

2. Have net gearing ratio of less than 100 per cent; and

3. Have cash-to-short-term debt ratio of more than 1x.

In January it was reported that China may ease the ‘three red lines’ property rules to support the troubled sector.

Evergrande’s liquidity crisis has made it a symbol of the country’s property sector woes.

China’s property sector remains in turmoil, with major developers failing to complete housing projects, triggering protests and mortgage boycotts from homebuyers.

Fears of Evergrande’s collapse in 2021 sent shudders through the world’s number two economy.

Evergrande was found in 2021 to be struggling with more than $US300 ($A468) billion in liabilities. Picture: Noel Celis/AFP

The Evergrande Cultural Tourism City, a residential-retail-entertainment development, in Taicang, Suzhou city, China in 2021. Picture: Vivian LIN/AFP

In the latest filings in New York, Tianji Holding and Scenery Journey – of whom Evergrande is the ultimate holding company – also filed for Chapter 15 protection.

For months, Evergrande has been working on an offshore debt restructuring agreement, unveiling a proposal earlier this year.

It offered creditors a choice to swap their debt into new notes issued by the company and equities in two subsidiaries, Evergrande Property Services Group and Evergrande New Energy Vehicle Group.

This aerial photo shows a housing complex by Chinese property developer Evergrande in Huaian in China's eastern Jiangsu province. Picture: STR/AFP

Evergrande first defaulted on its bonds in 2021, fanning fears of a contagion. The latest court documents referenced restructuring proceedings in Hong Kong.

In July, Evergrande reported a net loss of over $176 billion in 2021 and 2022. Beijing has recently sought to bolster the sector by cutting mortgage rates, slashing red tape and offering more loans to developers.

The move by Evergrande will likely send shudders through Australia’s iron ore sector as it could pummel demand.

China’s construction industry accounts for about half of the steel used in the country.

Already the price of iron ore has weakened to below $US100 a tonne as fears spread about the weakening Chinese economy.

Reports of worrying Chinese economic data has pushed down the share prices of BHP, Rio Tinto and Fortescue Metals in recent days, the Australian Financial Review reports. Yesterday the Aussie dollar dropped significantly after the Australian jobless rate jumped to 3.7 per cent.

Evergrande’s bankruptcy filing is just the latest batch of bad news for China’s real estate industry.

In recent days Country Garden, China’s last surviving mega property developer, has been grabbing the headlines.

It failed to raise enough cash on Monday to meet scheduled bond repayments — putting it technically in default although there is a 30-day grace period.

Originally published as Property giant Evergrande Group files for bankruptcy