Forensic Analyst

Jason Yap, CFA

Forensic Accounting

On 22 October 2021, <a href="https://www.smartkarma.com/entities/china-evergrande-group" target="_blank" data-smartkarma-citation="entities:479:1" rel="noopener">Evergrande (3333 HK)</a><a href="https://www.ft.com/content/fb495500-b760-4e61-8327-110ef55c29b8" target="_blank" rel="noopener">repaid</a> a missed coupon payment on an a dollar bond.  This came a day ahead of the expiry of a 30-day grace period following the missed payment, and Evergrande averted a bond default. 
However, this by no means removes uncertainty surrounding subsequent due coupon payments, including the <a href="https://www.wsj.com/articles/china-evergrande-makes-overdue-interest-payment-on-dollar-bonds-state-media-says-11634869419" target="_blank" rel="noopener">USD45 million coupon payment</a> due next Friday (29 Oct).  Further, in the immediate month ahead, offshore bond coupons in excess of USD420 million falls due and payable. 
Even if Evergrande could meet these coupon payments, the property behemoth then <a href="https://www.bloomberg.com/news/articles/2021-10-22/evergrande-pays-bond-interest-due-saturday-local-media-says?srnd=premium-asia&amp;sref=pfTy75y8" target="_blank" rel="noopener">faces</a> at least a USD7.4 billion wall of debt maturing in 2022. To a certain extent, Evergrande paying the latest USD83.5 million coupon payment takes a hefty slice out of a shrinking pie of available funds which could otherwise be used to meet future principal debt obligations.
In this Insight, we discuss why a debt moratorium, which is a standard provision under most jurisdictions' insolvency and restructuring regimes, would provide a much needed relief and allow Evergrande and/or its administrators (if appointed) to conduct an orderly restructuring.
We also highlight the obvious challenges of taking this approach including the cross-border debt, creditor profile, and jurisdictional differences, as well as juggling the social and systemic concerns that are being contended with, and discuss how potentially they can be overcome.

On 22 October 2021, Evergrande (3333 HK)repaid a missed coupon payment on an a dollar bond.  This came a day ahead of the expiry of a 30-day grace period following the missed payment, and Evergrande averted a bond default. 
However, this by no means removes uncertainty surrounding subsequent due coupon payments, including the USD45 million coupon payment due next Friday (29 Oct).  Further, in the immediate month ahead, offshore bond coupons in excess of USD420 million falls due and payable. 
Even if Evergrande could meet these coupon payments, the property behemoth then faces at least a USD7.4 billion wall of debt maturing in 2022. To a certain extent, Evergrande paying the latest USD83.5 million coupon payment takes a hefty slice out of a shrinking pie of available funds which could otherwise be used to meet future principal debt obligations.
In this Insight, we discuss why a debt moratorium, which is a standard provision under most jurisdictions' insolvency and restructuring regimes, would provide a much needed relief and allow Evergrande and/or its administrators (if appointed) to conduct an orderly restructuring.
We also highlight the obvious challenges of taking this approach including the cross-border debt, creditor profile, and jurisdictional differences, as well as juggling the social and systemic concerns that are being contended with, and discuss how potentially they can be overcome. 

After Near-Miss, Evergrande (3333 HK) Needs a Debt Moratorium