China has an idea for Evergrande.
Hui Ka Yan should help pay the company’s debt. Out of his personal wealth.
It’s a novel idea. Billionaires should take responsibility for the behemoths they create. The buck stops here. Literally.
“Beijing’s directive to the Evergrande founder came after his company missed an initial September 23 deadline for a coupon payment on a dollar bond,” Bloomberg reported on Tuesday, citing unnamed sources.
Evergrande eventually paid the $83.5 million coupon (green in the figure, below). With just hours to go before a 30-day grace period lapsed, the company wired the funds to creditors late last week.
On Tuesday, at least two holders of the 8.25% dollar note maturing in March of next year said they did, in fact, receive payment before the grace period lapsed. Failure to make payment within the 30-day window could have triggered cross-defaults. The next test comes later this week, when the grace period on another note is set to expire.
“Local governments across China are monitoring Evergrande’s bank accounts to ensure company cash is used to complete unfinished housing projects and not diverted to pay creditors,” Bloomberg went on to write, citing the same sources in the linked article above.
Hui’s net worth is down by two-thirds in 2021, a year that’s cost him nearly $16 billion personally (figure below).
On the bright side, he could afford to lose it. As of Monday, his net worth was still nearly $8 billion on Bloomberg’s calculations.
Obviously, Hui couldn’t satisfy all of the conglomerate’s obligations, although after Monday, Elon Musk nearly could. Evergrande’s liabilities sum to nearly $300 billion.
But he could help with paying retail investors with overdue wealth products and, theoretically at least, make coupon payments to help the company avoid a default on its dollar debt. On Tuesday, Beijing told firms in “key” industries to repay offshore bonds in order to help prevent spillover from Evergrande.
Earlier this week, Beijing-based Modern Land China, a green developer, failed to repay principal and interest on a $250 million bond. In a filing, the company cited “unexpected liquidity issues arising from the adverse impact of a number of factors including the macroeconomic environment, the real estate industry environment and the COVID-19 pandemic.” The board and management “are assessing” the group’s financial condition and cash position.
Offshore defaults total $8.7 billion so far in 2021, the most ever. Property firms are behind $3 billion of that total.
As far as Hui Ka Yan and China’s “directive,” he’ll be happy to oblige. Or at least if his past remarks are any indication.
In 2018, a year during which he made an official list of outstanding entrepreneurs, Hui said, “Everything in Evergrande, it’s from the Party, the country, and society. So we should bear social responsibility.”
“Common prosperity” indeed.
I am with Xi on this one.
The US should have treated the Sackler family (Purdue Pharma) who made billions selling OxyContin and then filed for bankruptcy protection, the same way as Xi is treating Hui.
FWIW, agreed.
I understand limited liability corporation was a good and worthy invention/innovation that allowed much development. But when one man/family’s wealth is so directly tied with the direction of one company/one conglomerate, I feel personal liability helps making sure capitalism doesn’t turn to outright piracy…
The Purdue Pharma bankruptcy case is the poster child for reforming bankruptcy law. They should all be in broke and in jail for accessory to murder in all 50 states and instead they are rich and getting away with murder as if there is no possible way they could have ever been held accountable. It’s called LIMITED liability, not NO liability!
+1
My speculation on how this plays out: founder selflessly services Evergrande’s coupon payments while getting partly recompensed from hoped-for rise in Evergrande’s share price.
This buys time to hive off the parts of Evergrande that look attractive in the new CCP-run China (property management? EV?), and to complete some developments, sell assets (land, etc), renegotiate with debtors that CCP wants to protect, and otherwise stabilize the rest of Evergrande (property development).
He goes forward with New Evergrande while Legacy Evergrande either settles into life as a more cautious developer – maybe with some “social housing” mission – or goes into gradual run-off.
If this works, Chinese economy will not suffer a messy Evergrande collapse, key domestic interests will be more or less protected, and CCP will be pleased. Oh, and founder avoids disappearing.