Filing for Chapter 15 Bankruptcy Protection in New York Court
Concerns about Domino default in Chinese real estate industry
[이코노미스트 송현주 기자] Hengda Group, China’s second-largest real estate developer, has filed for bankruptcy protection in a New York court in the United States. At a time when the crisis in China’s real estate market is spreading throughout the economy, including the financial market, attention is drawn to the development of the Hengda crisis.
According to US media outlets such as the Wall Street Journal (WSJ), on the 17th (hereafter local time), Hungda filed an application for bankruptcy protection under Article 15 (Chapter 15) of the Bankruptcy Protection Act with the Southern Bankruptcy Court of New York. Tianhe Holdings, a subsidiary of Hengda, also filed for bankruptcy protection.
Filing for Chapter 15 bankruptcy protection is a U.S. bankruptcy proceeding that deals with international insolvency. The regulation is a measure to protect foreign companies from debt repayment demands and lawsuits from creditors in the United States when pursuing rehabilitation. If the application is accepted, all lawsuits against Hengda Group’s offshore assets will be suspended and creditors will be unable to seize them. The Wall Street Journal (WSJ) said, “A significant portion of the offshore debt of the Hengda Group lies under the jurisdiction of US law.”
Earlier, in December 2021, Hengda Group fell into default after failing to pay off US$22.7 billion (about 30 trillion won) of dollar-denominated bonds. Hengda shares listed on the Hong Kong Stock Exchange have been suspended and resumed trading since October of the same year, and trading has been suspended again since March last year. In its performance announcement on the 17th of last month, Hengda announced that it recorded a net loss of 812.03 billion yuan (about 149 trillion won) for the two years from 2021 to 2022. As of the end of 2022, the debt was 2.4 trillion yuan (approximately 440 trillion won) and the total asset was 1.8 trillion yuan (approximately 330 trillion won), exceeding debt.
Recently, Biguiyuan, another large real estate developer, fell into a default crisis after failing to pay $22.5 million (about 29.6 billion won) in interest on bonds due on the 7th. Biguiyuan said in a public announcement on the 16th that “there is a lot of uncertainty in repayment of bonds,” and the risk of default is growing.
The Financial Times (FT) analyzed, “The confusion surrounding the Zhongzhi Group (the major shareholder of Zhonglong International Trust) is amplifying concerns about China’s $3 trillion ‘shadow finance’ market.”
ⓒThe Economist (“Economic News for Tomorrow” Unauthorized copying and redistribution prohibited)
2023-08-19 00:26:00
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