China property behemoth says filed for debt restructuring not bankruptcy

A giant Chinese real estate developer that is struggling to avoid defaulting on $340 billion in debt has that it is asking a US court to approve a restructuring plan for foreign bondholders and rejected what it said were news reports that suggest it filed for bankruptcy.

Evergrande Groupe’s mountain of debt prompted fears in 2021 of a possible default that might send shockwaves through the global financial system.

China’s government has tried to reassure investors that its problems are contained and that lending markets will be kept functioning.

Once China's top-selling developer, Evergrande has become the poster child of the country's unprecedented debt crisis in the property sector, which accounts for roughly a quarter of the economy, after facing a liquidity crunch in mid-2021.

The developer has sought protection under Chapter 15 of the US bankruptcy code, which shields non-US companies that are undergoing restructurings from creditors that hope to sue them or tie up assets in the United States.

The filing is procedural in nature, but the world's most indebted property developer with more than $300 billion in liabilities must do it as part of a restructuring process under US law, two people familiar with the matter said. The sources declined to be named due to the sensitivity of the matter.

Evergrande declined to comment.

Evergrande's offshore debt restructuring involves a total of $31.7 billion, which include bonds, collaterals and repurchase obligations.

It will meet with its creditors later this month on its restructuring proposal.

A string of Chinese property developers has defaulted on their offshore debt obligations since then, leaving unfinished homes, plunging sales and shattering investor confidence in a blow to the world's second-largest economy.

The property sector crisis has also fanned contagion risk, which could have a destabilising impact on an economy already weakened by tepid domestic consumption, faltering factory activity, rising unemployment and weak overseas demand.

Morgan Stanley this week followed some of the major global brokerages to cut China's growth forecast for this year.

It now sees China's gross domestic product (GDP) growing 4.7 percent this year, down from an earlier forecast of 5 percent.

China is targeting 5 percent annual growth for this year, but an increasing number of economists are warning that it could miss the goal unless Beijing ramps up support measures to arrest the decline.

China's economic and property woes as well as the absence of concrete stimulus steps have sent a chill through global markets.

Asian shares were headed for a weekly loss of 2.8 percent, the third straight week of declines. Chinese blue chips dropped 0.5 percent and Hong Kong's Hang Seng Index slumped another 1.3 percent.

China is expected to cut lending benchmarks at a monthly fixing on Monday, with many analysts predicting a big reduction to the mortgage reference rate to revive credit demand and shore up the ailing property sector.