- On 17 July, China Evergrande released three financial reports simultaneously, including the audited 2021 and 2022 full-year results, as well as the 2022 interim results. We believe this move is in preparation for the resumption of trading in China Evergrande (3333.HK) shares, following in the footsteps of another major Chinese property developer, Sunac China.
- Evergrande’s auditor is Prism, a HK-established small accounting firm that mainly serves HK and Chinese clients, and is apparently not as globally recognized as the big four accounting firms. Nonetheless, Prism has issued a ‘Disclaimer of Opinion’, which is a clear red flag that implies the auditor does not have sufficient information to ensure Evergrande’s actual financial position.
- Regardless of the reliability of the financial figures, the resumption of trading will massively boost the valuation accuracy for the recovery value of the debt restructuring plan. On the other hand, as the two largest components of the considerations in the equity-related package, Evergrande Property Services (6666.HK) has already released financial results and an independent investigation report for the misappropriated pledge guarantees, and Evergrande New Energy Vehicle (0708.HK) has also announced that it will hold a board meeting to approve the financial results. As a result, the optimal scenario would be for all three of Evergrande's listed companies to resume trading together in a short period.
- Evergrande also announced that hearings will be arranged next week in various courts to approve the convening of scheme meetings (expected date is usually one month after the hearing). According to previous announcements, only 30% of the Class C debt holders participated in the restructuring support agreement. We believe that Evergrande will proceed to the scheme voting even without sufficient participation from these creditors. However, a failure to obtain 75% attending creditors’ approval in the scheme meeting from any one of the classes should result in a collapse of the entire plan. Therefore, it is important to resume trading in the shares as it can reduce uncertainty and may incentivize Class C debt holders to participate in the restructuring plan.
- Based on the latest statement, Evegrande's total cash dropped from 181 billion yuan at end-2020 to 14 billion yuan at end-2022, while the total borrowings dropped from 717 billion yuan to 612 billion yuan. However, the total liabilities increased from 1,951 billion yuan at end-2020 to 2,437 billion yuan at end-2022, as the amount of payables (such as commercial bills) increased. The total equity also turned negative, indicating that Evergrande is now officially ‘insolvent’ (see Table 1).
- For the details of the restructuring plans, please refer to “The restructuring plan from Evergrande” and “Scenery Journey and Tianji’s Restructuring Plans”.
Table 1: China Evergrande’s Financial Figures
| (billion yuan) | December 2022 | December 2021 | December 2020 |
| Total Revenue | 230 | 250 | 507 |
| Net Profit / Loss | -126 | -686 | 31 |
| Total Liabilities | 2,437 | 2,580 | 1,951 |
| - Total Borrowings | 612 | 607 | 717 |
| - Payables | 1,014 | 904 | 839 |
| - Contracted Liabilities | 721 | 974 | 186 |
| Cash and Cash Equivalents | 4.3 | 5.4 | 158.8 |
| Restricted Cash | 10.0 | 23.3 | 22.0 |
| Total Equity | -599 | -473 | 350 |
| Land Bank (million sq.m) | 210 | 260 | 230 |
| Source: Company Announcements Data as of 17 July 2023 | |||
Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds positions in EVERRE 8.250% 23Mar2022 Corp (USD) and EVERRE 7.500% 28Jun2023 Corp (USD), and the analyst who produced this report holds a NIL position in the abovementioned securities.
Our podcast series, Yield Hunters, is available on Spotify, iTunes Podcasts and Google Podcasts. We share our thoughts on new bond issues and hold discussions on the fixed income space. Listen to our latest episode below and follow us!
