Marco Metzler insisted China Evergrande was bankrupt in 2021, now his critics have been silenced

Dr Macro Metzler was a little-known German credit analyst, until 2021 when he became one of the first financial experts to publicly raise serious doubts about the solvency of Chinese property giant, China Evergrande.

However, it was only fringe and niche media organizations, such as Asia Markets, that provided Dr Metzler a platform to share his views and concerns.

Evergrande bankruptcy cover-up claims as more debt deadlines loom, was the title of one widely shared Asia Markets article featuring Dr Metzler’s insights into the property giant. It was published in November 2021.

The article is well worth a read.

The crux of it – how the Evergrande charade was supported by the mainstream media and its reliance on so-called “anonymous sources”, purportedly telling journalists that China Evergrande was in-fact paying its debt obligations.

These articles eased the world’s concern about China’s crumbling property market, and even saw markets rally.

However, Dr Metzler saw through it.

He was so convinced the world was being bluffed, he bought Evergrande bonds to test his hunch.

Not surprisingly to him, he received no coupon payments, despite “anonymous sources” telling media they were being paid.

“Although some mainstream media outlets such as Bloomberg LP and Reuters reported that Evergrande had made its bond payments in the last few minutes, DMSA (Metzler’s company), as a public bondholder, has not yet received any payments, resulting in Evergrande’s default,” said Metzler in November 2021.

Metzler, as a small bondholder, was ignored by the mainstream media and even labelled alarmist by some.

So, why were no other bondholders complaining? Well, it’s likely they were happy with the media reports because they were keeping their clients and investors at bay, while they worked out how to get out of the mess that was rapidly unfolding in China.

The skeptic might even argue they were behind the “anonymous sources”.

Evergrande bondholders

Marco Metzler vindicated?

Last week news broke that China Evergrande had sough Chapter 15 bankruptcy protection in the United States, with a debt burden estimated to be over US$300 billion.

Dr Metzler says the news has finally “destroyed the Evergrande illusion” created by the mass media.

“Until March 2022 mass media was helping Evergrande to hide the fact that the group had not paid interest due to international bondholders. We had to prove the default status by buying (in October 2021) one of the international bonds and claiming the outstanding bond payments,” he said.

“Evergrande was from the beginning a large ponzi scheme which collapsed in September 2021… The good assets of China Evergrande have now already been sold in fire sales to selected investors and there is nothing left for international bondholders.”

However, the company has responded.

In a statement to the Hong Kong Exchange where Evergrande stock is listed, it said the Chapter 15 filing is “a normal step in the overseas restructuring procedure and doesn’t involve bankruptcy filings.”

But Metzler insists the development is significant. It will now make it very difficult for large U.S. institutions to mask the impact of the company’s collapse.

“The truth is that Evergrande Group is incorporated in the Cayman Islands and only there a bankruptcy case can be filed in court…. However, the chapter 15 bankruptcy application means all international Evergrande bonds have now have a D rating status, downgraded from C (default), and all investors have to write down the bonds to almost zero.

“The bonds cannot be used anymore as collateral and margin calls will be the consequence.”

Who owned China Evergrande bonds?

This image featured in this Asia Markets article from 2021 shows who the largest Evergrande bondholders were at the time of publication as the property giant’s downfall was unfolding.

China Evergrande bondholders