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.

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.”

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

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