The decision by one of China's largest real estate developers, Evergrande Group, to file for US bankruptcy protection, has sent shockwaves through the global markets.
Following two years of financial scares, Evergrande's procedural move in the Manhattan courts effectively shields the group from creditors that might sue the firm, or seek to tie up those of its assets that are governed by US law.
Chapter 15 of the US bankruptcy code is designed for non-US firms that are in a debt restructuring phase.
Yet it is a signal that the firm is running out of options, market watchers said. Evergrande is meeting with its creditors in 10 days time over $31.7 bn (€29.2 bn) of debt tied up in bonds, collateral and repurchase obligations.
The manoeuver emerged as Chinese authorities unexpectedly lowered several key interest rates last week amdist signs of deinflation in the world's second largest economy.
Another major Chinese developer, Country Garden, recently missed two debt payments and reported it was considering 'various debt management measures'. Ratings agency Moody's downgraded Country Garden's rating and described its debt as 'very high risk'.
Problems for some firms in China's real estate sector - which underpins around 25% of China's GDP - have had direct implications for real estate firms around the globe in the past.
Perhaps the best-known example is the £1 bn (€1.13 bn) One Nine Elms development in London, which is still under construction after several delays over the course of nearly a decade.
When the Chinese government effectively turned off taps for the Chinese developer involved, Dalian Wanda, the construction arm of Brookfield allegedly did not get paid.
The situation led to a £770 mln (€704 mln) refinance last year involving Apollo Global Management, as well as Carlyle’s global credit platform, Crosstree Real Estate Partners, and Précis Capital Partners.
