EVERGRANDE - DEFAULT & NON PAYMENT Claimed by Activist Bond Investor Preparing BANKRUPTCY PROCEDURES

hi welcome back to the channel in this video i want to give you an update on the bankruptcy proceedings that i mentioned in a previous video that had been commenced by the german consultancy firm dms we've heard some further reports today that dmsa is still preparing those bankruptcy papers and that they are still saying that they have not been paid their coupon their interest on the bond that they're holding so i wanted to share with you a press release that dmsa have issued which talks about the bankruptcy and the non-payment and make some allegations that other payments have not been made and that there is an actual default already in existence so i wanted to go through some of that and then also to look at the paper that they have also released called the great reset in which they are predicting a new financial global crisis that will be triggered by the evergrand situation so before we get into all of that if you could give me a thumbs up and subscribe i'd really appreciate that so late on wednesday news was circulating that dmsa had commenced bankruptcy proceedings against evergrand and this was based on their belief that the coupon payments had not been made now dmsa are not a financial institution or a fund but they appear to have bought some of the bonds in the secondary market so that they will be able to report first hand as to what's happening and also they seem to want to be at the forefront of an investor group to start bankruptcy proceedings so let's have a look at a press release that dmsa have issued about the situation so this is the press release and as you can see right up front it's stating that evergrand officially defaulted so they're the first words of this press release and that dmsa is preparing bankruptcy proceedings against evergrand group so it stipulates that dmsa has invested in the bonds and has not received any interest payments at the end of the grace period and dmsa are calling for other bond investors to join them in the bankruptcy proceedings so they then go on to make some allegations about the payments in october so they've stipulated that evergrand 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 already recognized the default at that time and proved in a study that the bankruptcy of evergrand the world's most indebted corporation could ultimately lead to a great reset i.e the financial meltdown of the global financial system so they're making some pretty strong allegations there they're basically saying that they do not believe that the interest payments were made in october and that the default actually did occur and they're basically suggesting that evergrand lied and that the media were hoodwinked on this that they were actually taken for a ride and that it didn't actually happen it's quite a controversial statement to make especially when there are so many financial institutions who are holding these bonds you would have thought if the payment wasn't made that somebody would have come out and actually stated that so dmsa go on to talk about their own position so it says here in order to be able to file for bankruptcy against the company as a creditor dmsa itself invested in evergrand bonds whose grace period expired today november the 10th in total evergrand would have had to pay 148 million in interest on three bonds no later than today but so far we have not received any interest on our bonds with banks in hong kong closing today it's certain that these bonds have defaulted now this is a really interesting statement because dmsa has basically said here that they've deliberately bought into the bonds so that they can act as a creditor and be involved in the bankruptcy so they're basically wanting to be at the forefront of all of this exposure about the bankruptcy proceedings for evergrand which is quite a strange situation to take because they've already stated that they feel that evergrand could cause a great reset a huge financial meltdown so it seems fairly crazy for these guys to then go out and invest some of their own capital into the bonds just to be able to get a seat at the table because if their prophecy is correct if what they're saying in their paper comes true then they know that evergrand is not going to be able to repay those bonds so they're essentially writing off their own money before they've even started this process so they go on in this press release to stipulate exactly which bonds have caused the default so you can see here that they're saying that the last five interest coupon bond payments have not been made and therefore all five of these bonds are in default and it says above this for the dmsa expert it is clear as soon as a court opens insolvency proceedings evergrand will also be officially bankrupt and that is only a matter of days so they're being pretty bullish and pretty categorical about the situation from dmsa's point of view it seems very clear-cut the company did not make the interest payments they're in default and dmsa are leading the charge to effect that bankruptcy so i thought it'd be interesting to have a quick look at dmsa's paper the great reset and i've attached a link in the description below if you're interested in reading this we can see here the subtitle of this paper is evergrand and the final meltdown of the global financial system which is a pretty sensational title they're really looking for a lot of profile here now interestingly this was written on the 24th of october which appears to be before dmsa bought into the bond and before they started making statements about evergrand missing interest payments and being in default so if we have a quick look through the paper you can see they give a quick bit of background about evergrand they talk about the business model which gives quite a good summary of the way the company has grown so it says here that evergrand sales and development projects have increased 12-fold in the last 10 years and the number of ongoing projects is steadily increasing since sales are not enough to finance the enormous growth the group finances itself through borrowed capital in the form of loans bonds and large down payments from customers so that is a good summary of how evergrand has managed to grow so rapidly they then go on to talk about the business model being dependent on price rises and that if the market slows down then that would mean that evergrand's business model was no longer sustainable so these are issues that we have discussed previously on this channel and i'm in agreement with everything that dmsa has said so far in this paper they then go on to talk about why evergrande is in trouble and they stipulate that the reason for evergrand's difficulties is that the company and other chinese real estate developers finance their astronomical growth mainly with debt creating a kind of ponzi scheme which again is quite a sensational statement and i will touch on that in future videos because i think there is an argument that some of evergrands business could be described as a ponzi scheme particularly their wealth management activities but i'll come on to that in a separate video in the future they then go on to talk about the chinese government dealing a heavy blow to evergrand and other real estate groups by severely restricting their lending through new regulations because of this evergrande's business model collapsed almost overnight as the group could no longer take on new debt to finance its operations or repay existing debt so again that is something that we have covered off on this channel and i do agree with what dmsa are saying there that essentially when the chinese government brought in the three red lines and restricted the amount of debt that evergrande was allowed to borrow then it really did kill that business model and because they were so dependent on future sales it really took the business out at the knees and made it virtually impossible for them to continue trading the paper then goes on to talk about the problems that evergrande is now facing and states that evergrand has over 300 billion dollars of debt and needs to raise as much as 106 billion euros to cover interest and repayments over the next 12 months they go on to say that they believe it's doubtful that the company can do this and that they are currently focusing on servicing bonds in china's domestic market fearing turbulence according to the chinese business journal so that's an interesting statement that they believe that evergrande is giving preferential treatment to the chinese debt ahead of the international bonds and they're quoting an example of an onshore bond that has continued to be paid on time where a payment of 35.88 million dollars was made in september the final statement in this section says if evergrand does become insolvent countless chinese will have to worry about the money they spent on the company's unfinished real estate projects which i think again is is a true statement and it's something we've talked about here before that this will have a huge impact on the chinese economy because of investment restrictions in china which prevent local people from investing into a variety of assets that you would take for granted a lot of people have really high exposure to property and we also know that some people have taken out mortgages to finance the down payments that they've made on these unfinished apartments so we've got a situation where people are actually at risk already even if they don't have to complete on the purchase of that property they've already got debt that they built up just to buy the initial stake so it will have a massive impact and we're talking life savings here a lot of people have put a lot of money into these evergrand properties so it's not just a one percent payment upfront we're hearing that some people have paid anything up to 50 of the value of these properties as their deposit so it really is a serious situation so dmsa go on to talk about the other property development companies that are also struggling mainly as a result of the change to the lending criteria in china they've mentioned cinetec hyundai land and fantasia and they closed that section with the statement that it's not looking good for real estate companies as investors are increasingly concerned that the bubble in the chinese real estate market is in danger of bursting so dmsa are really laying it on thick they are painting a picture here of complete disaster ahead for this whole market so they go on to talk about what the chinese government is doing about this and this is also a pretty scathing section of the report so the first section looks to be fairly positive it seems to indicate that the chinese government is trying to do something about this position so it states that as the chinese government attempts to clean up the highly speculative real estate market through the three red lines it is now considered unlikely that the government will rush to rescue evergrande as a real estate group so that's indicating that the government wants to do something to try to rein in these developers exposure however dmsa then go on to really point the finger at the chinese government and they've stated that in mid-october it became known that the financial regulator had ordered in september that some major banks accelerate their lending for real estate in the third quarter it also reportedly allowed the sale of some bonds based on real estate loans these have been banned since the spring to reduce the domino effect in the real estate sector so what they're saying there is that although the chinese authorities have brought in some new regulations actually their actions have not followed through on those new restrictions so they're claiming that the authorities told the banks to increase their exposure to the sector to accelerate the amount of lending and that they also encouraged bonds to be issued even though they were officially banned in the spring so this is what dmsa have said i don't know where they got that information from i don't know what they're basing their facts on to prove that the amount of lending has increased since september and that new bonds have been issued for real estate companies if those statements are true then it would support that argument that the chinese authorities are not actually trying to rein in the lenders and reign in the property developers however i don't know whether it is true at this stage it looks like an unsubstantiated claim from dmsa so the paper goes on to talk about the rating agencies now we covered this in our previous video and as you'll be aware all of the rating agencies have now downgraded evergrand to junk status so the bonds are now officially junk and are on the brink of default so the rating reflects the fact that the company could default at any point and one of the most interesting sections of this report is the list of all of the current bond holders now this has been compiled using publicly available data so only includes institutions who have a reporting requirement to declare their investments but even so it does have a lot of different names on this list if we look at the top eight here we've got fidelity blackrock ashmore ubs alliance prudential royal bank of canada and hsbc moving on to the rest of the list i won't run through all of the names we can have a quick look here at who else is sitting with tens of millions of exposure quite a long list of financial institutions who have got real risk here dmsa goes on to talk about the other issues that china is experiencing they point out that the company's economic growth slowed in the third quarter due to higher commodity prices scarce coal supplies supply shortages and power outages and that gross domestic product grew 4.9 quarter on quarter the slowest pace in a year they go on to say that in general a chaotic situation prevails in china initially the economy recovered well from the recession caused by the pandemic in addition to energy and supply shortages and the resurgence of the virus it is now being squeezed by regulators of technology and real estate companies european companies operating in china are also increasingly affected by rationing and subsequent plank closures so they're really trying to put a negative spin onto the whole environment they're talking about the problems with the developers the problems with the banks they're rumoring about the government actually telling the banks to do something different and now they're talking about wider economic issues that are starting to affect the growth of the chinese economy so dmsa's summary of the whole situation starts with the statement the bankruptcy of evergrand itself seems inevitable goes on to say in the unlikely event that the chinese government does not step in evergrands collapse can already be regarded as certain the bankruptcy of the dangerously lurching property developer is merely the first stage of a financial chain reaction that such a bankruptcy is likely to trigger the entire real estate sector which accounts for 25 to 30 percent of economic output in china is completely overheated here any bankruptcy could drag down other chinese real estate companies banks and insurers with it in addition the evergrand bankruptcy is likely to significantly slow down chinese economic growth this could have devastating consequences for the global economy supply chains could be put under even greater strain than they are already today if they don't break completely this in turn would then inevitably lead to galloping inflation in the usa and europe the final statement says a bankruptcy of evergrand has the potential to lead to extreme distortions of the global financial system with bankruptcies of players that are still considered rock solid today triggered by a chinese financial virus called evergrand the world may face a great reset the final meltdown of the current global financial system so very strong words from dmsa they're basically describing an armageddon situation this is the worst case scenario they're saying that evergrand is already bust is already in default and is on the point of causing a domino effect that's basically going to bring down the whole world so what's the summary in the conclusion from all of this well it's obvious that dmsa have an agenda here they've set out their stall in terms of what they're predicting is going to happen both with evergrand and the chinese economy so they've drawn up this analysis which states that they think that there is a new global financial crisis that is likely to be triggered by the evergrand situation and it's not unusual for a market commentator to write such a report but what is unusual here is that they have gone to the next level so they have gone out and bought some bonds in order to ensure that they are in the lenders camp so that they can then report firsthand on what's happening with the bond interest payments but they've also gone to an even higher level that they've self-appointed themselves as the leaders of the bankruptcy process and they seem very very keen to be at the forefront of all of the proceedings and to be submitting papers to officially declare evergrand bankrupt now it's quite an aggressive situation for a consultancy firm to do that because they're not sitting with a huge exposure trying to protect their investors positions they've actually bought into this at the rump end of things so they've come in knowing that evergrand is teetering on the brink of failure with a view to leading that whole process so i'm not quite sure what dmsa's driver is here whether they're doing it to raise the profile of the business or they're doing it for some other reason whether they're trying to present this as a case study which they will then write about and talk about and maybe try to leverage their position from and make some commercial gains from it it's really difficult to understand exactly why dmsa are taking such a position but it is good for us because dmsa don't have any real skin in the game they've taken a small portion of the debt i've heard on the grapevine that it was 50 000 that's the rumor so they don't have a lot of exposure and i guess if they can then report firsthand as to what's happening it could be worth that 50 000 investment for them to be able to uncover what could be a really really big news event and if it is the start of a new global financial crisis then dmsa will be very well placed to be one of the leading commentators on all of this and maybe their intention is to follow some of the other businesses who are at risk of bankruptcy and essentially report from the front line as to what is going on with all of these issues so coming back to the original point of this video dmsa are still stating that they have not been paid and they are still stating that they're preparing papers for the bankruptcy proceedings and it will be really interesting to see whether or not they follow through on that action whether we see dmsa sometime over the course of the next week or so actually submitting a bankruptcy request and it will be fascinating to see what the response of that is from the chinese authorities and the other lenders because dmsa is holding a tiny proportion of this debt it's not feasible that people like blackrock and fidelity and ashmore who've got over 400 million dollars of exposure would be happy to let somebody who has a 50 000 exposure lead to the negotiations so essentially dmsa could force the hand of these giant institutions to make sure that they actually take up the reins and lead any proceedings if and when that happens so hopefully you found that interesting hopefully found it useful i've mentioned dmsa before but i wanted to do a follow-up video because they are still in the news they are still out there they haven't withdrawn any of their statements and they are still saying that they're going to lead bankruptcy proceedings against evergrand so i'll keep you posted on any further news as soon as i hear anything about dmsa or anything else that's relevant to the current situation i'll let you know through a new video if you've liked what i've said then please give me a thumbs up and subscribe if you haven't done so already

Channel: Joe Blogs

Views: 14,896

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Keywords: housing market, house prices, house market crash, property prices, property market, property market crash, property market 2021, housing crash, housing crash 2021, housing crash uk, house crash, property crash, house price crash, housing market forecast, housing market crash, evergrande, evergrande crisis, recession, crash, housing market 2021, china, china property, evergrande china, evergrande crisis explained, china property bubble, china debt crisis, evergrande default

Id: OwPSwXGSasg

Length: 21min 58sec (1318 seconds)

Published: Sat Nov 13 2021