German Market Body Starts Bankruptcy Proceedings vs Evergrande

An independent German data service has declared China’s embattled property developer Evergrande to have defaulted on their payments to German bondholders, forcing it to initiate bankruptcy proceedings against the Chinese company, Deutsche Presse-Agentur (dpa) reported.

Photo Insert: While Evergrande has supposedly defaulted on its payments to German bondholders, this does not mean automatic bankruptcy for the embattled property company.

The agency, Deutsche Markt Screening Agentur GmbH (DMSA), is an independent data service that collects and evaluates market-relevant information on companies, products, and services for the benefit of consumers, private customers, and intelligent investors.

Particularly problematic for Evergrande: all 23 outstanding bonds have a cross-default clause. "This means that if a single one of these bonds defaults, all 23 outstanding bonds automatically have 'default' status," DMSA said.

However, this does not automatically result in a bankruptcy for Evergrande Group. To determine bankruptcy, an insolvency petition must be filed with the court. This can be done either by the company itself or by one or more of the company's creditors.

Evergrande, the second largest real estate developer in China, defaulted on interest payments on two bonds back in September, with the 30-day grace period ending in October. Before the end of the grace period, Evergrande misled the public by propagating rumors about alleged interest payments.

The international media also took the rumors for granted. Only the DMSA recognized the default at that time and proved in a study that the bankruptcy of Evergrande, the world's most indebted corporation, could ultimately lead to a "Great Reset," the final meltdown of the global financial system.

"As soon as a court opens insolvency proceedings, Evergrande will also be officially bankrupt - and that is only a matter of days," DMSA argued.

"But while the international financial market has so far met the financial turmoil surrounding the teetering giant Evergrande (with a total of $305-billion debt) with remarkable basic confidence - one can also say: with remarkable naivety - the US central bank Fed confirmed our view yesterday," says DMSA senior analyst Dr. Marco Metzler.

"In its latest stability report, it explicitly pointed out the dangers that a collapse of Evergrande could have for the global financial system."

In order to be able to file for bankruptcy against the company as a creditor, DMSA itself invested in Evergrande bonds, whose grace period expired today (Nov. 10, 2021). In total, Evergrande would have had to pay $148.13 million in interest on three bonds no later than today.

"But so far we have not received any interest on our bonds," explains Metzler. He adds, "With banks in Hong Kong closing today, it's certain that these bonds have defaulted."

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