Did Evergrande default or not (yet?)? You'll be the judge - and pick your move

Updated: Nov 24, 2021

Since young, we were taught to do critical thinking (those nostalgic General Paper / Social Studies days huh!)- to evaluate if a piece of news is bias or objective. Right now, I guess we will have to apply the same set of skills right now in this "fake news era" as we are looking at REAL case study:


Let's take a look at Source A - the bondholders:


Accordingly to veteran German credit analyst, Dr Marco Metzler, NO payments were made to bondholders even 2 days after the deadline of the 30-day grace period.


He as representative of DSMA (German Market Screen Agency) recently purchased Evergrande bonds, not to make money, but to test Metzler’s hunch that Evergrande is not meeting its debt obligations and the sources being cited by the financial press have been misleading journalists and global investors.

Source:

https://www.asiamarkets.com/evergrande-bond-payments-again-sugar-coated-by-anonymous-sources-but-bankruptcy-could-come-in-matter-of-days/


For the "non-clickers", I have copy and pasta an extract for you below from the article above:


Quote: "The most significant Evergrande bond payments deadline yet – the expiration of a grace period at midnight Wednesday, November 10 (US EST) for three missed bond coupon payments worth a total of US$148.2 million – has just passed in unremarkable fashion.

Something that in itself is quite remarkable, given the potential ramifications.


The payments (originally due on October 11) still have not been confirmed in any offical capacity, however anonymous sources have told major financial news publications that payments have been made.


“Evergrande Group once again averted a destabilising default at the last minute, with a source on Thursday saying several bondholders had received overdue coupon payments,” reported Reuters."


Source B: Reuters - the Financial Press


https://www.reuters.com/business/several-bondholders-china-evergrande-receive-overdue-bond-coupon-payments-media-2021-11-11/



Copy and pasta:


"SINGAPORE/HONG KONG, Nov 11 (Reuters) - Cash-strapped developer China Evergrande Group once again averted a destabilising default with a last minute bond payment but the reprieve did little to alleviate strains in the country's wider property sector.


Customers of international clearing firm Clearstream received overdue interest payments on three dollar bonds issued by Evergrande (3333.HK), a Clearstream spokesperson said on Thursday."


So now who do we believe? I guess the saying "You never know until you go try" can be applied here. (But sometimes, there are some things in life you just might not want to try)


Anyway, what's the big deal about this debt crisis?


For those who believe that the default is real (and wrapped), the impact of this debt crisis is that once this bomb is dropped, it will pose systemic Risks on Tether. The crypto market and the traditional financial market are deeply connected - Evergrande’s debt crisis can lead to a chain reaction to the crypto market, in particular, stablecoins. Most of the reserve assets Tether holds to support USDT are commercial papers and bonds (instead of US dollar cash).


Again, another inconsistency:


Tether has reverted that it doesn’t hold any commercial paper issued by China Evergrande. The stablecoin issuer holds $30.8 billion in commercial paper and certificates of deposits and the vast majority of the commercial paper held by Tether is in A-2 and above rated issuers,” says Tether. Yet, the company would not disclose any details about whether it holds commercial papers issued by other Chinese companies.


For those that believe that Evergrande did not default, there's nothing to see here. All's well.


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