Investors Burned by Chinese Developer’s Collapse

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You have read regularly on Yoursurvivalguy.com about the world’s most indebted property developer, Evergrande, a Chinese firm that has been working its way through a slow-motion collapse, and the order has finally come to liquidate the company. From the first reports, it appears that buyers who put down payments on apartments that were never built will receive seniority to lenders, leaving Evergrande’s creditors with little to nothing. Bloomberg reports:

China Evergrande Group creditors are set to recover just a fraction of the billions of dollars worth of the builder’s debt they hold, with most of its assets likely hard to access for liquidators.

Almost all of Evergrande’s assets are in mainland China, presenting legal hurdles for non-Chinese administrators. The key Hong Kong holdings add up to just $2.9 billion compared with $25.4 billion in offshore liabilities as of the end of June 2022, according to a court document and Bloomberg’s calculations.

Creditors had sought to stave off the liquidation order through more than two years of negotiations with the world’s most-indebted developer, but that had failed to yield substantial progress. While the recovery prospects are bleak for offshore bondholders, what liquidator Alvarez & Marsal Inc. does may serve as a template for Chinese developers as the historic property crisis drags on.

“The eventual winding-up of Evergrande is a lose-lose situation for the company and its creditors,” said Hansen Zhou, senior partner at Bohe & Hansen. “The Hong Kong court has pushed the company to propose multiple rounds of restructuring schemes before making a liquidation ruling, demonstrating sufficient professional patience and social responsibility.’

Action Line: Evergrande isn’t the only company built like a house of cards. My recommendation is always diversification. The better diversified an investor is, the less likely a complete collapse like Evergrande’s will do permanent damage. When you want to talk about a diversified portfolio, I’m here. In the meantime, click here to subscribe to my free monthly Survive & Thrive letter.

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West (RIP JB) and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com To sign up for my free monthly Survive & Thrive letter, click here.

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