Chinese investors are still being paid for their investments in Evergrande, thanks to the Chinese government. But can foreign bondholders count on the communist government to save them as well? Never underestimate the vengeance a government will take against the investor class where you invest and they win, or at least don’t lose.
Foreign bondholders have claims to a number of Evergrande’s offshore assets in the event that the company cannot repay them, including the company’s property management arm and an electric vehicle startup that Evergrande founded in 2018.
Some analysts have said the Chinese government is unlikely to support a restructuring where foreign bondholders are left out in the cold.
“China’s household savings rate isn’t enough to sustain China’s growth, so the country needs foreign capital to grow the economy,” said Bo Zhuang, senior analyst at Loomis Sayles & Co. in Singapore. “While foreign investors are definitely at the low end of the hierarchy, they will have a seat at the table before a restructuring is finalized.”
In early December, Evergrande said it had turned to its provincial government for help in dealing with its liquidity crisis. The government of Guangdong has dispatched a working group to help the company manage its risks, and Evergrande has set up a risk-management committee that includes its top executives and representatives of several state-backed entities.
The company said in regulatory filings in December and January that it planned to engage with its creditors, and that it would work with them to formulate a restructuring plan for its offshore indebtedness. Evergrande also said publicly that it would protect the legitimate interests of the various parties.
The international bondholder group said Thursday that hasn’t happened. “The overriding impression is that contrary to the group’s public words, which may at this point be construed as an attempt to stall any enforcement actions from the creditors, the group has disregarded its offshore creditors and the legal rights of its creditors,” their statement said. Evergrande has also ignored a request to pay the fees of its creditors’ advisers, a standard practice in a restructuring process, according to two people familiar with the matter.
Advisers to the committee of bondholders are concerned that the company might also have additional off-balance-sheet debt that it has not disclosed and that it might be in worse financial health than previously thought.
While Evergrande’s international bondholders have been left hanging, the developer has so far avoided defaulting on its yuan-denominated public debt onshore. Last week, Evergrande secured investor backing to delay making payments on one of its onshore bonds.
Action Line: You need to make bonds part of your portfolio, but they should be from places where the rule of law is paramount, and companies are free to do business. If you need help building such a retirement portfolio, I would love to talk with you. If you’re not ready, but want a regular reminder to stay serious about preparing your family and finances for a future of success, click here to sign up for my free monthly Survive & Thrive newsletter. I help you stay motivated to achieve your goals. But only if you’re serious.
