PR94660

BERLIN, Feb. 23, 2022 /PRNewswire=KYODO JBN/ --

International bondholder and DMSA file an allegation of criminal conduct

against defaulted Evergrande Group

For months, China Evergrande Group has been teetering on the brink of

insolvency. On several occasions, China's second-largest real estate developer,

which has accumulated more than $300 billion in debt, has defaulted on interest

payments on U.S. dollar bonds. Now an international creditor, in cooperation

with DMSA Deutsche MarktScreening Agentur GmbH, has filed an allegation of

criminal conduct  against the Evergrande holding company for committing

insolvency fraud.

Things are getting tighter for Evergande: A bondholder, Liechtenstein-based

Financial Market Partners Capital (FMPC) Consulting AG, filed an allegation of

criminal conduct on Friday, February 18, 2022 for insolvency fraud against the

Cayman Islands-registered Evergrande holding company. FMPC Consulting AG was

supported and advised - in addition to internationally active insolvency

lawyers - by DMSA Deutsche MarktScreening Agentur GmbH.

Background: Evergrande has defaulted on interest payments on so-called offshore

bonds amounting to more than one hundred million US dollars on several

occasions since mid-November. These are held by international investors,

including FMPC Consulting AG. (Note to editors: More about FMPC Consulting AG

and its investment in Evergrande bonds can be found at the end of this press

release.) On December 3, Evergrande officially admitted to international

investors for the first time in an ad hoc announcement to the Hong Kong Stock

Exchange - the holding company's home exchange - that there was "no guarantee

that the Group will have sufficient funds to continue to meet its financial

obligations."

If a company domiciled in the Cayman Islands is insolvent or of doubtful

solvency, its directors have a fiduciary duty under the laws and regulations

applicable there to act in the interests of its creditors. They then also have

to consider whether it is in the interest of their creditors to initiate

reorganization or insolvency proceedings. As the management of Evergrande

Holding has so far failed to initiate insolvency proceedings, there is a strong

suspicion that the directors of Evergrande have caused substantial pecuniary

loss to the company's creditors through deception and breaches of their duty of

care. Such conduct is punishable, inter alia, under sections 248 et seq. of the

Cayman Islands Criminal Code.

DMSA Managing Director Michael Ewy explains, "With the allegation of criminal

conduct, we are trying to save what can be saved for FMPC Consulting AG and

other international creditors." At the latest with the official announcement of

the default of the interest payment on December 6, 2021, the Evergrande

directors had been obliged to file for voluntary or provisional insolvency at

the court of the company's headquarters in the Cayman Islands. "To date, this

has not happened despite multiple requests from us. As a consequence, we have

now filed an allegation of criminal conduct with the Cayman Islands Public

Prosecutor's Office for committing insolvency fraud." Thus, he said, it is now

also the responsibility of the local authorities to investigate the case and

hold the directors personally liable, as well as to have the insolvency

determined by the authorities.

The reasoning behind it: "Evergrande has defaulted, but has still not been

officially declared completely insolvent," explains Dr. Marco Metzler, Chairman

of the Board of Directors of FMPC Consulting AG. "As more and more distress

sales are taking place and overdue bond interest is repeatedly not paid to

foreign investors, we had to act in our own interest but also in the interest

of all international creditors. If the local authorities do not officially

declare insolvency, we intend to file a bankruptcy petition against Evergrande

ourselves. This will happen as soon as we have an official, enforceable debt

instrument against Evergrande in our hands. Until then, it may take a few more

weeks."

As FMPC Consulting AG sees itself as the trustee of all international

Evergrande creditors and in order to reduce the cost risk for each claimant,

the company is offering other international creditors to join its proceedings,

which took another step forward yesterday with the filing of the allegation of

criminal conduct in the Cayman Islands.

Incidentally, Metzler and Ewy are not alone in their view: China Evergrande

Group was already officially downgraded to "partially insolvent" by

international rating agencies at the beginning of December. Thus, the rating

agency Fitch has assigned Evergrande a status of "Restricted Default" (RD).

Similarly, rating agency Standard & Poor's downgraded the real estate developer

to "Selective Default" (SD). All 23 of Evergrande Group's international bonds

are affected by this selective default. The only rating worse for both agencies

is "Default" (D) - complete default. This rating will be assigned at the latest

when the Evergrande Group has been officially declared insolvent by a court.

This is exactly what FMPC Consulting AG and DMSA now want to achieve with their

allegation of criminal conduct order to prevent further asset transfers to the

detriment of international creditors. The company has already sold shares and

assets several times in a distress sale, knowing full well that it was making

losses. Worse still, in recent months there have been multiple illegal

transfers of assets, causing significant damage to the company's international

creditors, as this illegal action is likely to have severely impacted their

chances of recovering their assets.

For example, in November 2021, Evergrande sold its stake in the streaming

service provider HengTen Network Group for the equivalent of 273.5 million US

dollars. This "gave" Evergrande a loss of the equivalent of 1.09 billion US

dollars. Incidentally, the stake was sold at a 24 percent discount to the

closing price at the time of the acquisition. As a result, HenTen's share price

plummeted by 24 percent.

In addition, Chinese authorities ordered Evergrande founder and chief executive

Hui Ka Yan to sell some of his private assets - including high-end art,

calligraphy and three properties - to compensate Chinese Evergrande

bondholders. It is feared that this has led to unequal treatment of Evergrande

creditors, as it is unclear whether creditors were given preferential treatment.

"In this respect, it would have been best for Evergrande's international

creditors if the group itself had taken action earlier and filed an insolvency

petition with a provisional restructuring plan in accordance with the

bankruptcy laws of the Cayman Islands," explains DMSA CEO Michael Ewy. The

management of the Evergrande holding company has been guilty of delaying

insolvency for some time now.

From Dr. Metzler's perspective, there is virtually no hope for Evergrande's

turnaround. "The restructuring analysis I have from Fitch Ratings - one of the

three largest rating agencies in the world, where I started my career as a

financial analyst years ago - assumes that Evergrande would be liquidated with

a restructuring rate of zero to ten percent." That means creditors would get

back a maximum of one-tenth of their invested capital.

What's more: Evergrande is not the only one struggling at the moment. A number

of other Chinese developers - such as Kaisa Group, Fantasia Holdings, Modern

Land China, and Guangzhou R&F - are also having great difficulty refinancing.

Some have also already experienced payment defaults.

No wonder that Ewy and Dr. Metzler consider the insolvency of Evergrande and

other Chinese property developers to be inevitable. In their wake, there would

then likely be a host of other bankruptcies. "To avoid internal unrest, China

would be forced to return to a hard communist line," concludes Dr. Metzler.

This would ultimately imply that all of China's international debt of around

585 billion U.S. dollars would no longer be serviced and that equity

investments by foreign investors of around 600 billion U.S. dollars would also

have to be written off completely - with devastating consequences for the

global banking system and the entire world economy.

About Financial Market Partners Capital (FMPC) Consulting AG:

Financial Market Partners Capital (FMPC) Consulting AG, is a private investment

and advisory firm based in Ruggell, Liechtenstein. As a single family office,

FMPC Consulting AG invests exclusively its own funds of its owner, the Metzler

family.

About the Evergrande investment of FMPC Consulting AG:

FMPC Consulting AG holds 200 units of EVERRE 10 ½ Bonds, April 11, 2024 (ISIN:

XS19 8204 0641) with a total par value of US$200,000. These were purchased on

November 01, 2021 for 50,000 US dollars via the house bank of FMPC Consulting

AG and have since been held in custody at SIX Switzerland via the house bank in

Liechtenstein. Already on November 10, 2021 an interest payment for this bond

was missed.

About DMSA Deutsche Markt Screening Agentur GmbH:

DMSA Deutsche MarktScreening Agentur GmbH is an independent data service that

collects and evaluates market-relevant information on companies, products and

services. The research house, which has the same owner as FMPC Consulting AG,

the Metzler family, sees itself as an advocate for consumers, private customers

and private investors. For them, DMSA bundles important and decision-relevant

information and prepares it in an easily understandable way. DMSA works with

FMPC Consulting AG as needed.

Press contact:

Inga Oldewurtel

Press Officer

mailto: oldewurtel@prio-pr.de

Tel.: +49 176 62 26 18 97

Responsible for the content:

DMSA Deutsche Markt Screening Agentur GmbH

Wichertstraße 13

10439 Berlin

Germany

Michael Ewy

Managing Director

http://www.dmsa-agentur.de

Source: DMSA Deutsche Markt Screening Agentur GmbH