Evergreen's bankruptcy Saga reveals a hidden default asset fire sales and a lack of transparency
Evergreen's bankruptcy Saga reveals a hidden default asset fire sales and a lack of transparency.
While it's now universally accepted that Evergrande defaulted in late 2021, the mainstream media for reasons best known to them played a significant role in obscuring this fact until March 2022.
Our team took the initiative to purchase one of Evergrande's international Bonds in October 2021. This move was instrumental in proving the company's default status as we were able to directly claim the outstanding Bond payments.
Evergrande: A financial House of Cards.
From its inception, Evergrande's business model bore all the hallmarks of a Ponzi scheme. The inevitable collapse came in September 2021.
Yet in a move that stunned many, Evergrande recently applied for Chapter 15 bankruptcy protection under New York state law. Their statement last Friday was particularly telling; they emphasized that this move was a normal procedure for offshore debt restructuring and not an actual bankruptcy petition. This is a crucial distinction as their U.S. dollar-denominated notes are governed by New York law.
The Asset Fire Sale.
Behind the scenes, Evergrande's valuable assets were rapidly sold off in fire sales to select investors. This left international bondholders in the lurch with nothing but the promise of worthless new Bonds in exchange for the outstanding $22.5 billion.
Our position as bondholders has given us a unique perspective, and we can confirm that Evergrande has not been transparent or communicative about their restructuring plans.
The Cayman Connection.
Evergrande Group's incorporation in the Cayman Islands is a significant detail. Only in the Caymans can a bankruptcy case for the company be legitimately filed. Kai McGreel, a partner at Bedell Kristen, has pointed out the similarities between Evergrande's situation and that of Luckin, another company that faced financial turmoil. However, Evergrande has yet to file for bankruptcy in the Cayman Islands, a move that many view as a blatant criminal act by its management.
The Aftermath.
The silver lining in this dark cloud is the recent Chapter 15 application. All international Evergrande bonds have been downgraded to a derating status. This means investors must write these bonds down to nearly zero. These bonds can no longer serve as collateral, leading to imminent margin calls.
Implications for Americans.
The ripple effects of Evergrande's downfall will undoubtedly touch American shores. Many U.S. investors hold these now nearly worthless bonds either directly or indirectly through mutual funds or pension plans. The broader American public might feel the impact through potential market volatility and the interconnectedness of the global financial system.