Troubled property developer China Evergrande said on Tuesday that it ”found” 13.4 billion yuan ($2.1 billion) in pledged deposits had been seized by banks.
How the matter is handled by China’s government ”could have an adverse impact on the way insolvency occurs within China,” says Michael Pettis, an expert in China’s financial markets who is a professor of finance at Peking University in Beijing. Here are his tweets on the discovery:
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This is interesting. Evergrande has just “discovered” that RMB 13 billion in pledged deposits have been seized by banks. Depending on how this is treated by the authorities, it could have an adverse impact on the way insolvency occurs within China.https://t.co/CjWOF8Tdtr— Michael Pettis (@michaelxpettis) March 23, 2022
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A well-functioning insolvency process reduces financial distress costs for the economy by, among other things, ensuring creditors are treated fairly. But if creditors with insider access are allowed to seize assets ahead of other creditors, the process can become chaotic.— Michael Pettis (@michaelxpettis) March 23, 2022
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Rather than an orderly restructuring designed to maximize enterprise value and limit the damage to the underlying economy, this would encourage a disorderly restructuring in which agents tear apart the company as they try to maximize the share they retain of the carcass.— Michael Pettis (@michaelxpettis) March 23, 2022
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I’d be surprised if other creditors took this lying down. The question for the regulators is whether they want to nip this process in the bud, or are willing to tolerate a costly bankruptcy process.— Michael Pettis (@michaelxpettis) March 23, 2022
In itself it wouldn’t be a surprise if banks were better protected than bondholders, Alicia, but it seems to me that in this case some better-positioned banks were able to cut in line ahead of other banks.
— Michael Pettis (@michaelxpettis) March 23, 2022
Also on AF:
Evergrande Units Say ‘Drastic Changes’ Will Delay 2021 Results
China Evergrande Seen Resolving $511m Loan With State Help
AF TV – Evergrande Debt Crisis: Five More Developers on the Brink of Default
