It is being reported that Evergrande has officially defaulted on interest payments to international investors.
One of those investors, DMSA, says that it hasn't received any interest payments as the grace period ends. DMSA is preparing bankruptcy proceedings against Evergrande and is calling on all bond investors to join it.
What's going on with Evergrande?
Evergrande is one of China's largest property developers. Indeed, it's one of the biggest in the world. But it has a huge amount of debt hanging overhead – hundreds of billions of dollars.
DMSA, which stands for Deutsche Markt Screening Agentur, is an independent data service that collects and evaluates market information on companies, products and services. It sees itself as an advocate for consumers, private customers and investors.
In order to be able to file for bankruptcy against Evergrande as a credit, DMSA invested in Evergrande bonds. The grace period ended on 10 November 2021. In total, DMSA said that Evergrande would have had to pay US$148.13 million in interest in three bonds no later than 10 November 2021.
But DMSA says it has not received any interest on its bonds. DMSA said Hong Kong banks were closed, which meant that it was certain the bonds had defaulted.
The DMSA senior analyst Dr Marco Metzler said:
But while the international financial market has so far met the financial turmoil surrounding the teetering giant Evergrande with a remarkable basic confidence…the US central bank Fed confirmed our view yesterday. In its latest stability report, it explicitly pointed out the dangers that a collapse of Evergrande could have for the global financial system.
When will Evergrande bankruptcy proceedings start?
DMSA noted that all of Evergrande's 23 reported outstanding bonds have a cross-default clause, meaning if one bonds defaults, then all of them supposedly automatically have default status.
But that doesn't automatically result in Evergrande bankruptcy, an insolvency petition must be filed with the court.
Dr Metzler said:
DMSA is preparing bankruptcy proceedings against Evergrande. We are already holding talks with other investors in this regard. We would be pleased if other investors were to join our action group.
As soon as a court opens insolvency proceedings, Evergrande will also be officially bankrupt and that is only a matter of days.
Time will tell whether this officially comes to something.
It was reported yesterday that Evergrande had sold a 5.7% stake in media business HengTen Networks Group which produces films and television shows, and operates a streaming platform for US$145 million.
There are conflicting reports that Evergrande has actually paid the due interest on those bonds.
Iron ore continues to fall
Evergrande is indirectly a big single user of iron ore. There are several other Chinese property developers that are facing financial problems. Combined, there is a big question mark over a significant group of consumers of Australian iron ore.
The iron ore price continues to fall. It has fallen below US$90 per tonne. The share prices of BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG) remain in focus.
