Insolvency petition against real estate conglomerate ready – International creditor and DMSA seek co-venturers filing for insolvency too

BERLIN, GERMANY – Newsaktuell – 8 December 2021 – The Chinese real
estate developer China Evergrande Group once again defaulted on overdue
interest payments on December 6, 2021. The previous Friday, the company
officially admitted for the first time that it was in the very deepest
financial trouble. The debts of the real estate giant now amount to more than
$300 billion. In cooperation with DMSA Deutsche MarktScreening Agentur GmbH, a
creditor has prepared an insolvency petition against Evergrande Holding. Now,
fellow campaigners are being sought before the application is filed with the
court.

A bondholder of
China Evergrande Group, Liechtenstein-based Financial Market Partners Capital
(FMPC) Consulting AG, has been preparing an insolvency petition against the
Cayman Islands-registered Evergrande Holding since November 22. FMPC Consulting
AG was supported and advised by DMSA Deutsche MarktScreening Agentur GmbH,
among others.

(Note for the
editorial offices: More about FMPC Capital AG and its investment in
Evergrande bonds can be found at the end of this press release).

In the meantime, the
application has been completed and can be filed at any time with the Grand
Court of the Cayman Islands in George Town. As FMPC Consulting AG sees itself
as the administrator of all international Evergrande creditors and in order to
reduce the cost risk for each applicant, the company offers other international
creditors to join its proceedings.

On Tuesday, Dec. 7,
Bloomberg news agency reported two holders of U.S. dollar bonds issued by
Evergrande subsidiary Scenery Journey said they had not received interest
payments by the end of the 30-day grace period. A total of $82.5 million in
interest would have been due no later than Dec. 6.

Previously, in the
case of non-performing bonds issued by the Evergrande conglomerate, there had
been repeated reports in international media that interest payments had been
made at the last second after all. “However, these reports were not
confirmed to us either by Evergrande itself or by the paying agents of the
bonds,” explains Dr. Marco Metzler, Chairman of the Board of Directors of
FMPC Consulting AG and Senior Analyst at DMSA Deutsche MarktScreening Agentur
GmbH. “In this respect, the current Bloomberg reports represent a further
aggravation of the situation,” Dr. Metzler continued.

An aggravation with
announcement: Already on Friday, December 3, Evergrande had officially admitted
for the first time in a statement to the Hong Kong Stock Exchange – the home
stock exchange of the holding company – that there was “no guarantee that
the group will have sufficient funds to continue to meet its financial
obligations”.

“This official
statement alone has confirmed our assessment of the Group’s absolutely desolate
financial situation,” explains Dr. Marco Metzler, Chairman of the Board of
Directors of FMPC Consulting AG and Senior Analyst at DMSA Deutsche
MarktScreening Agentur GmbH. He finds the default on interest payments hardly
surprising for another reason: “We have still not received overdue
interest for our bonds – which should have been paid by November 10 at the latest.
And this despite the fact that it has been widely reported in the press that
the overdue interest payments to international investors have been made.”
In Dr. Metzler’s view, the official statement on December 3 and the final
default on interest payments on December 6 for the Evergrande subsidiary’s bond
represent two events of default at once for all 23 outstanding international
bonds of the Evergrande conglomerate with a nominal value of $23.7 billion.
“Almost all of it will be lost,” fears Dr. Metzler.

Michael Ewy,
Managing Director of DMSA Deutsche MarktScreening Agentur GmbH, adds,
“With the insolvency application we helped prepare, we are now trying to
save what can be saved for FMPC Consulting AG and other international
creditors.” The fear of financial analyst Metzler: “Evergrande is
insolvent, but officially not yet insolvent. With the default on a bond now
confirmed in the press for the first time, the management of the Evergrande
holding company must file for insolvency if it does not want to be guilty of
dragging its feet. However, since this application has not yet been made, we –
the DMSA and FMPC Consulting – are concerned that assets may be removed from
the insolvency estate.”

“In view of all
these developments, it was right to start preparing an insolvency petition
against Evergrande already at the end of November “, explains Dr. Marco
Metzler in his capacity as Chairman of the Board of Directors of FMPC
Consulting AG. He invites affected international investors to join the
application. The application is to be filed with the competent court in George
Town within the next few days.

Upon acceptance of
the insolvency petition, an insolvency administrator will begin winding up the
Evergrande Group and liquidating the assets for investors and creditors.
“The prices of all Evergrande securities – stocks and bonds alike – will
fall to virtually zero in the process,” predicts senior analyst Metzler.
“But all distressed sales beginning with the filing date can then also be
reversed.”

However, DMSA senior
analyst Metzler believes there is little hope for Evergrande’s turnaround.
“The restructuring analysis by Fitch Ratings – my former employer and one
of the three largest rating agencies in the world – assumes that Evergrande
would be liquidated at a restructuring rate of zero to ten percent.” That
means creditors would get back a maximum of one-tenth of the capital they
invested, if access to assets in China is even possible.

“The fact that
the Chinese government has now sent high-ranking state officials to
Evergrande’s boardroom and thus de facto controls the group does not
necessarily mean that all claims – especially those of foreign investors – will
also be serviced,” fears Dr. Metzler. Rather, he sees it as likely that
Evergrande’s inevitable insolvency will lead to a host of other bankruptcies.
“To avoid internal unrest, China would then be forced to return to a
hard-line communist approach,” concludes Dr. Metzler. In his view, this
would ultimately imply that all of China’s international debt of around $585
billion would no longer be serviced, and equity investments by foreign
investors of around $600 billion would also have to be written off completely –
with devastating consequences for the global banking system and the entire
world economy.

“Supply chains
would be even more strained than they already are today. This, in turn, would
then inevitably lead to galloping inflation in the U.S., Europe and other
countries. As a result, there would be extreme distortions in the global
financial system – with insolvencies of players who are still considered rock
solid today,” fears Dr. Metzler. “Triggered by a Chinese financial
virus called Evergrande, the world could face a ‘Great Reset,’ the final
collapse of the current global financial system.”