EVERGRANDE ON BRINK OF COLLAPSE - $13 BILLION of LAWSUITS & Sales fall $34 BILLION in Last 3 Months

hi welcome back to the channel in this video i want to provide you with an update on evergrand so we've just seen some sales figures released for the three months to the end of november 2021 and they do not make good reading at all we've also seen some action being taken by creditors of evergrand they've issued some lawsuits against the business and they're now going through the courts so there's been an acceleration in terms of its obligations and some actual court action which we've been waiting for for quite a while and there's also an investigation ongoing by the chinese authorities to see whether or not evergrand is solvent whether it needs a bailout or whether they are going to let it go bankrupt so evergrand is now sitting on the brink of a disaster so we've talked about this a lot on this channel we know that they're in default fitch recently called an official default for the company they missed the payments of their recent bond coupons but we're now starting to see some action being taken so i wanted to bring you right up to speed with what's going on with evergrand it is the largest property developer in terms of its debt and the obligations that it's got built up and it's the most high profile and this deal is likely to be the starting point for a whole series of property company restructurings and also some other chinese business restructurings i recently posted a video on the chinese property market which has crashed in november this is the start of the collapse of the property sector and it will be really fascinating to see what happens with regards to chinese authorities and evergrand because if they let it go bankrupt and they don't meet any of its obligations then that sends a really negative message to all of the other creditors all of the other lenders for other property businesses and all of the rest of the chinese market so this is a really pivotal point for not just evergrand but the whole chinese economy right now so before we get into any of the detail if you could give me a thumbs up at some point during this video then i would really appreciate that and if you haven't already subscribed then please do so so evergrand isn't releasing public figures right now we're not getting any official data but we've picked up some sales figures from cric which is a shanghai based consultancy firm and they've reported that for the three months to the end of november the sales for evergrand were 2.5 billion dollars equivalent and that compares to 36.5 billion dollars for the three-month period to november 2020 so that equates to a decline of 34 billion dollars in the three-month period in percentage terms that equates to 93 fall in sales now that level of performance would cause problems for any business no business can cope with a 90 fall in sales but when you've got a business that is so highly leveraged and so geared as evergrand they need every single penny to have a hope of meeting their interest obligations and you've now got a business that's got no cash coming through the door at all and these results are compounding on the previous set of results that we saw so back in september we reported on a 97 fall in sales at that point and now we've got a continuation of that same trend so this is completely unsustainable for evergrand they don't have any cash anyway they haven't made their most recent bond coupon payments but they clearly have stopped trading this is a situation where they have some legacy income that's coming through and we've seen some pr from the company about sites reopening we've seen pictures and videos of workmen doing some construction but actually this business looks like it's no longer trading to me it's just not credible to believe that a business whose sales are falling 90 percent is still operating at full capacity it's just not feasible and if sales are falling 90 then cash flow for a business like evergrand is going to be even worse than that because they've got a high fixed cost base they've got a lot of sites that they're operating on right now they all have to have security for those sites they've got the ownership of all of the land and all of the investment that they've made they've obviously got a massive debt burden so they've got a huge interest bill so this company is insolvent if this was a business anywhere else in the world the directors would be declaring an insolvency event right now they would have to declare that they no longer have enough money to meet their obligations and that they would then move into special measures so it might be chapter 11 if it was in the u.s or it could be administration in europe but it would be going into a position where it's getting broken up and the creditors would get paid something we've got a situation in china right now where everybody's carrying on as if ever grand is still a normal trading business it quite clearly isn't but the authorities are allowing it to carry on they're letting them make statements we've now got the risk management committee which has moved in from the government and from what i hear on that we've now got a situation where we've got seven government officials and two management of evergrand on that committee so it's a committee of nine and the vast majority are government officials so essentially evergrand is now being run by the chinese authorities the government has taken over the business they should declare it bankrupt and move it into a breakup situation they haven't done that yet but they certainly should do given the numbers that we've just seen there is no way that this business trading at these levels can service the amount of debt that it has on its balance sheet so up until now no action has been taken against evergrand to actually file for bankruptcy we heard from dmsa the german activist that they were intending to submit papers and they wanted to push the company into bankruptcy discussions but nothing ever happened on that front however now we have seen that the creditors of evergrand have actually filed lawsuits against the business and it's reported that those lawsuits are in excess of 13 billion dollars so the information that we've seen states that 367 individual cases have been submitted to the chinese courts totaling 13.2 billion dollars of claims now these cases started to be submitted back in august but it's only now come to light that they've built up such a large amount and we've got a table here which shows the breakdown of those creditors so the total amount on this graph is 13 billion the likelihood section at the bottom is construction contracts so these are firms that evergrande has subcontracted the building work to that haven't been paid and these claims equate to somewhere in the region of 25 of the total of 13 billion so we're looking at somewhere in the region of three billion dollars of unpaid contractors the purple section is purchase contracts so these are goods and materials that evergrande have been buying from their suppliers so it might be raw materials and fixtures and fittings and flooring and lighting and those sort of things and that equates to around about 20 of this total so in excess of two billion dollars so the orange section at the top of all of these graphs relates to financial lenders now we don't have any detail on which financial lenders have submitted lawsuits already so it could be some of the existing banks but this may well be other facilities that have been provided to the company on an unsecured basis and it could also be that some of the bondholders such as dmsa have started submitting papers and this is the biggest section and accounts for somewhere in the region of 35 to 40 of these figures so we're looking at around about four to five billion dollars from those creditors so what does this mean for evergrand well now that we've got formal lawsuits submitted and the courts are involved we are definitely heading into a restructuring for evergrand and it's most likely that we will see a breakup of the group what's interesting about this chart is there are a significant amount of lawsuits that were submitted in october and november and that was around about the time when the government decided to set up the risk management committee so clearly they were told by the courts that action was being taken that they were going to have to go through a formal process and therefore they've jumped into the driving seat and decided to take over the business as i mentioned earlier the majority of the risk management committee are government officials so they will make all the decisions and they will decide exactly what happens to this business going forward so the chinese authorities have now sent in a team to investigate the assets of evergrand with a view to deciding whether or not it's solvent or whether or not it needs to be bailed out now we've heard consistently from the authorities that they will not bail out evergrand they've stated that they're not too big to fail and the situation was caused by the mismanagement of the business and trying to grow at breakneck speed so the authorities have already distanced themselves from the whole evergrand position and they will not fund the bailout of evergrand we know that for sure what they're doing here is doing a full investigation to see what assets they now have they will also be investigating the founder they'll be looking through all of his personal assets it's very likely that he will be made insolvent that they will take all of his assets from him and make an example of him in this situation so we're seeing an official notification here that the authorities are now looking under the bonnet they're seeing exactly what's in there and at some point they'll make a decision as to what's happening with evergrand and it's very likely to be broken up and declared bankrupt so what's the summary and conclusion here well it's very clear from the trading results that we've just seen that evergrand is no longer a going concern it cannot continue trading in its current form it needs to be stopped and broken up immediately now we've heard that the government has been funding a lot of other property development businesses and giving them debt facilities so that they are in a position to be able to buy the best assets from evergrand so they are likely to be the sites where you've got a lot of chinese nationals who are waiting for their apartments to be completed so that they can then move into them but in terms of the rest of evergrand and what value is likely to remain it's going to be minimal we've talked about it before but there's very little value in this group right now unfinished projects are almost worthless the land is no longer in demand there is too much land and not enough buyers right now from a property development point of view so there is nothing really in evergram that's going to save the day the international bondholders will not get back a penny from evergrand there is no way that they have got a chance of getting their 19 billion back because there's around about 280 billion dollars of debt sitting in front of them in secured positions but it's very unlikely that those lenders will get much back as well so it's a pretty grim synopsis for evergrand the trading is a disaster we've seen that the courts are now receiving lawsuits from all the creditors so it's going through the process the authorities are already in charge they're doing a review right now to see whether there's any value in the group i think it's likely that that review will show that there isn't really much value and that we are looking at a pretty bleak write-off situation for anybody who's had involvement with evergrand here so i'll keep you posted on any developments as and when they happen please check out the channel for other videos such as the one on the market crash that's happening right now in the chinese property market if you haven't done so already please subscribe and if you've got time please give me a thumbs up for this video

Channel: Joe Blogs

Views: 6,361

Keywords: housing market, house prices, house market crash, property prices, property market, property market 2021, housing crash, housing crash 2021, housing crash uk, house crash, property 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, china crisis, kaisa, kaisa default, evergrand

Id: mq-QS5WijPc

Length: 12min 52sec (772 seconds)

Published: Fri Dec 17 2021

Reddit Comments

[u/QualityVote]

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[u/Independent-Ad4660]

Again

[u/mallermike]

With so many HF trading on margin, here is some China market notes.

Here are some notes I got from a Patrick Boyle (the lawsuit begins)-you tube video. I feel this is relevant to GME since so many hedge funds that are short GME are trading on margin and it costs money to short a stock.

-Chinese bankruptcy law says secured loans get paid first so Chinese banks will get b paid before bond holders -people don’t have property taxes and cities rely on revenue from land sales. Land sales are down 92 so revenue will be an issue -many of the first lawsuits were construction works so they will probably get paid first -people that bought properties paid for the houses in advance , -Chinese real estate make up 1/3 of the countries total economic output.
-1.6 million of incomplete apartments that people paid for (cost is usually 25 year of a household income). -in 2007 Chinese bankrupt showed the government has a lot of input on who gets paid

-Evergrande, only 5% of debt lawsuits have been issued (13 billion in lawsuits ) vs 300 billion in total debt -China has had few bankruptcy proceedings so the procedures are not defined as well as western countries

If you believe any of these facts are inaccurate due to my interpretation, let me know as I can modify

Please be aware I’m not happy to see huge market problems as it could have negative impact on a lot of innocent people, but being aware of issues will impact my financial choices so this is why I’m sharing.

[u/fonix232]

Evergrande on the brink of collapse

[u/Edawg661]

EVERGRANDE: THE TURD THAT WONT FLUSH.

[u/VTbeerfan]

Probably why they had a green day(minute actually).

[u/MoAss_Mo_Mayo]

MY BODY IS READY AGAIN