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.
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.
How did Evergrande go bankrupt? In the words of Ernest Hemingway, "Gradually, then suddenly." In recent years, Evergrande has become an emblem of China's real estate crisis.
In 2021, under the weight of $300 billion in liabilities, Evergrande defaulted on its debts, sparking a string of defaults at other building companies.
Analysts described the Chinese government's approach to Evergrande as a "Controlled demolition," in which authorities allow the company to continue operating as they guide it through a gradual collapse.
Evergrande already faces several lawsuits since it defaulted on its debt in December 2021, including a winding-up petition in Hong Kong which, if successful, would immediately liquidate the company's assets.
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.
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