So we know that China’s second-largest property developer Evergrande (the company has been on the Global Fortune 500 list) faces a hazardous cash crunch and is on the verge of bankruptcy. Evergrande has over $300Billion in liabilities.
It has already missed two offshore bond payments in the past weeks. As far as I am updated with the whole story, Evergrande has another $7Bn in bond payments coming due in 2022 and $9Bn in 2023.
Why?
What happens is yet to be seen but amidst all this, a US Fund by the name of ‘Marathon Asset Management’ has been buying up the bonds of Eevergrande from the marketplace. WHY?
The Fund manager answers this in an interview with him on Bloomberg Markets. He says that his fund did not buy the debt from the marketplace late until this week but now the price of acquisition has dropped so low that it is starting to make sense.
The debt of Evergrande was trading at about 30 or lower cents on October 1. The Chairman of Marathon asset management says that the recovery value is not known but intuitively at this point the recovery value seems more than the current price of acquisition in the marketplace.
Domino Effect
Upon being asked further, he denied revealing the exact cost and entry price that his fund got while buying the offshore bonds. He also said that Marathon Asset Management awaits for the first domino to fall so they can undertake similar transactions in some other Chinese companies that have a bad credit problem.
According to the Chief Fund Manager of Marathon Investment, the first group to be paid by Evergrande is the homebuyers. The second on the list is the suppliers and creditors of the company. The third is the domestic creditors and the fourth is the offshore bond holders. Hence, the offshore bond holders are definitely in a pretty bad spot as they are given the least priority.
