Evergrande bankruptcy cover-up claims as more debt deadlines loom

As the China Evergrande Group scrambles to offload corporate jets, luxury property and business units in what appears to be a fire sale to meet debt obligations, one respected financial analyst has suggested a cover-up of monumental proportions could be underway.

German credit analyst Marco Metzler is skeptical of a series of media reports citing anonymous sources which claim that China Evergrande has met deadlines for bond coupon payments.

“The fact that there is no confirmation of receipt of payment from any official source and that the sources are being treated in such a non-transparent manner raises concerns,” said Metzler said in an interview with German publication Manager Magazin.

What is Metzler referring to?

Let’s take a look at how the most recent major offshore bond coupon payment deadlines have played out through the financial press.

Each caused significant concern in global markets as the deadlines approached – concern which quickly dissipated after reports emerged (without official confirmation) that the obligations had been met at the eleventh hour.

September 23, 2021 – $83.5m coupon payment

A US$83.5 million coupon payment on the EVERRE 8.25% March 2022 5-year USD bond was due on September 23, 2021. The bond, which had an initial issue size of around $2 billion, was the first major coupon payment that the world was eagerly watching as peak 2021 Evergrande fear set in around August/September.

There was no payment made prior to the September 23 deadline, so a 30-day grace period (part of a covenant attached to the bond) set in.

Much on the investor panic that led up to the September 23 deadline dissipated as seperate reports from Reuters and the state-owned China Securities Times emerged, citing anonymous sources who said Evergrande had sent the $83.5 million it owed to a Citibank trustee account on Thursday October, 21, two days before the grace period expired.

There was no offical announcement made by China Evergrande or any other major stakeholder. Citibank and China Evergrande did not respond to Reuters’ request for confirmation. However, the news was seen as a major relief for global markets.

September 29, 2021 – $45.2m coupon payment

A week later, a September 29 deadline for a US$45.2m coupon payment (for a March 2024 USD bond) would also be missed. The same 30-day grace period came into play before a New York Times report emerged on October 28 stating that Evergrande had met the payment, one day before the grace period expired.

Again, the source tipped off the Times on the condition of anonymity and Evergrande did not respond to requests for comment.

Metzler claims to have done his own homework and says, despite asking numerous investors, none has been able confirm receipt of any payments.

“Evergrande and Citibank have not officially confirmed any alleged interest payments for the $83 million, even at this time. We have asked numerous investors known to us, they could not confirm any receipt of payment.

“The source referred to by the New York Times and other media is a single, allegedly anonymous creditor who is said to have told the media a few hours before the deadline that he had received the interest payment.”

Evergrande bankruptcy
Various media reports regrading the September 23 and September 29 USD bond coupon payments all cited anonymous sources.

Is Evergrande bankrupt?

Evergrande is not bankrupt in any legal sense and Asia Markets is not suggesting the company is trading while insolvent. However, Marco Metzler, a former Fitch Ratings Director, says he’s led to believe that Evergrande bankruptcy has already “effectively” taken place.

He doesn’t hold back in his assessment of the Evergrande crisis and the lack of official verification about the property developer’s most recent debt obligations being meet.

“Evergrande and Citibank, as trustee and paying agent for the interest payments, have not yet officially confirmed a single payment of the interest that has been overdue for more than 30 days.

There remains considerable doubts as to whether money has really flowed, and if at all, possibly only to individual creditors of the offshore bonds.

“In our view, this obviously means that the Evergrande bankruptcy has already effectively occurred. This also means that all other 22 bonds issued are considered to be in default under the cross-default principle. This is how it is regulated in the bond terms and conditions. This means that bruised investors can now file for insolvency.”

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More coupon payments deadlines imminent

If Marco Metzler’s theory is correct, the coming weeks could send further, and perhaps much more significant shockwaves through markets, just as many investors seem to be overlooking the initial Evergrande contagion fears.

On Wednesday this week (November 10), a 30-day grace period expires for three bond coupon payments worth a total of US$148.2 million. These were initially due on October 11.

The 30-day grace period covenant is also believed to now be in play for two coupon payments that were due on October 24 and two payments that were due on November 6. The four payments totalling $317.5 million.

Asia Markets has compiled the following list of Evergrande’s most recent and upcoming coupon payment deadlines for USD bonds, to the end of this year.

Evergrande offshore bond coupon payments to end of 2021

DateCoupon Payment Amount (USD)Bond Maturity date
October 11, 2021$68.9mApril 2022
October 11, 2021$42.5mApril 2023
October 11, 2021$36.8mApril 2024
October 24, 2021$115mOctober 2022
October 24, 2021$120mOctober 2023
November 6, 2021$41.9mNovember 2022
November 6, 2021$40.6mNovember 2023
December 28, 2021$50.4mJune 2023
December 28, 2021$204.8mJune 2025

As the above deadlines loom and grace periods come to an end, we can now watch on to see if the same play-book is used. Will markets once again be put at ease by mysterious, anonymous sources claiming obligations have been met and default, one again, has been staved off at the eleventh hour?

With more than $700 million in offshore bond coupon payments due by the end of the this year, we could see Marco Metzler’s Evergrande bankruptcy theory proved wrong or right within weeks.

Should Evergrande be liquidated in the event of a formal default, Metzler says creditors are unlikely to be paid much more than 5% of their claims.

Related: Evergrande and its auditor are under investigation

Asia Markets Partner