China Evergrande Group Officially Defaults

China Evergrande Group (3333.HK) defaulted on interest payments to international investors on November 10, 2021, at 9:30 am in Hong Kong, Hong Kong.

China Evergrande Group, the second-largest real estate developer in China, defaulted on interest payments on two bonds back in September, with the 30-day grace period still ending in October. However, shortly before the end of the grace period, the public was misled by rumors about alleged interest payments. The international media also took the rumors for granted. Only the DMSA – Deutsche Marktscreening Agentur (German Market Screening Agency) already recognized the default at that time and proved in a study that the bankruptcy of Evergrande, the world’s most indebted corporation, could ultimately lead to “The Great Reset – Evergrande and the Final Meltdown of the Global Financial System”

Evergrande made $110 billion in sales last year and has $355 billion in assets. In June, it failed to pay some commercial paper and the government froze a $20 million bank account. The company now owes total liabilities of $305 billion, making it the most indebted real estate developer in the world. It is also the largest issuer of dollar junk bonds in Asia. Evergrande owes money to 128 banks and over 121 non-banking institutions. Consequently, the company’s stock price has dropped by 90 percent over the past 14 months, while its bonds were trading at 60 to 70 percent below par.

“But while the international financial market has so far met the financial turmoil surrounding the teetering giant Evergrande with a remarkable basic confidence – one can also say: with remarkable naivety – the U.S. central bank Fed confirmed our view yesterday,” says DMSA senior analyst Dr. Marco Metzler. “In its latest stability report, it explicitly pointed out the dangers that a collapse of Evergrande could have for the global financial system.”

The bankruptcy of the dangerously lurching developer is merely the first stage of a financial chain reaction that such a bankruptcy is likely to trigger. In their report, Dr. Metzler and Co. make it clear that Evergrande is not the only Chinese real estate developer in trouble. Fantasia, Modern Land, and Sinic, for example, have also recently been unable to service their debts. The entire real estate sector, which accounts for 25 to 30 percent of economic output in China, is completely overheated. Any bankruptcy can drag down other Chinese real estate companies, banks, and insurers.

In order to be able to file for bankruptcy against the company as a creditor, DMSA itself invested in Evergrande bonds, whose grace period expired today (Nov. 10, 2021). In total, Evergrande would have had to pay $148.13 million in interest on three bonds no later than today. “But so far we have not received any interest on our bonds,” explains Metzler. He adds, “With banks in Hong Kong closing today, it’s certain that these bonds have defaulted.”

Particularly problematic for Evergrande: all 23 outstanding bonds have a cross-default clause. “This means that if a single one of these bonds defaults, all 23 outstanding bonds automatically have ‘default’ status” DMSA senior analyst Metzler knows. However, this does not automatically result in bankruptcy for Evergrande Group. To determine bankruptcy, an insolvency petition must be filed with the court. This can be done either by the company itself or by one or more of the company’s creditors. And this is precisely what is now planned. Metzler: “DMSA is preparing bankruptcy proceedings against Evergrande. We are already holding talks with other investors in this regard. We would be pleased if other investors were to join our action group.”

For the DMSA expert, it is clear: “As soon as a court opens insolvency proceedings, Evergrande will also be officially bankrupt – and that is only a matter of days.” A bankruptcy of Evergrande has the potential to lead to extreme disruption of the global financial system – with bankruptcies of players that are still considered rock solid today. “Triggered by a Chinese financial virus called Evergrande, the world may be facing a ‘Great Reset’ – the final meltdown of the current global financial system,” Dr. Marco Metzler pessimistically concludes.

About DMSA Deutsche Markt Screening Agentur GmbH:

DMSA Deutsche Markt Screening Agentur GmbH, is an independent data service that collects and evaluates market-relevant information on companies, products, and services. DMSA sees itself as an advocate for consumers, private customers, and intelligent investors. The claim: to always look at companies and providers, products, and services through the eyes of the customers. The customers are the focus of DMSA’s work. For them, important and decision-relevant information is bundled and presented as market screenings. The aim is to create more transparency for consumers when selecting products, investments, and services.

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