Thread by @bauhiniacapital

Some odd comments here, but otherwise a worthwhile summation of current onshore suits (which, since August, have been amalgamated at the Guangzhou Intermediate Court) against Evergrande.

The "new info" here is in the breakdown and nature of creditors.

ft.com/content/941c0e…

The story suggests US$13.2bn of suits so far. Some of that will be people owed money. Some is people suing in order to start the process of control of projects. Some are suits just to lay claim because it looks like it will get worse.

There is some surprising stuff.

We continue to have comments about onshore vs offshore. It STILL doesn't work like that.

Offshore bonds issued by Evergrande ($3333.HK) and its subsidiaries guaranteed by EG are different than the bonds issued by the onshore real estate subsidiary of 3333 called Evergrande Real

Estate Group (a.k.a. Hengda). The relationship is that Hengda is the property developer. It has hundreds (or 1000+) subsidiaries dealing on a project-by-project basis. Banks lend to projects secured by the project assets. Contractors work for the project co, possibly backed by

Hengda. The project cos owe local taxes. Hengda owes taxes. Hengda has employees. Hengda itself issues bonds, but the "assets" underlying its bonds are mostly its net equity in all the projects. If the projects themselves go under, then a lot of the "equity value' of Hengda

disappears. Hengda is also liable for WMPs issued by someone else which it guaranteed. And other trust loans. And of course its unsecured bonds and loans.

If all of those are paid off and there is money left over in the Hengda shell after it is empty and all the other stuff is

sold (like the HK and Guanghzou HQ buildings) and secured debt there is paid off, THEN the onshore co can take the cash and pass it to shareholders.

Evergrande 3333 HK is a shareholder. It would get residual cash in the real estate business and apply that to its own capital

structure. There may also be some inter-company loans/indebtedness (between offshore and onshore). That gets messy, but in general, onshore real estate business creditors have nothing to fear from offshore creditors. The GZ local govt is not going to let Hengda send money to 3333

as a dividend before creditors are paid out.

So enough with the onshore vs offshore (and offshore bondholders will "get screwed by Chinese authorities"). The process is pretty clean here (much less clean for some other companies tho).

The other striking point here is that

Evergrande was borrowing money from corporates, likely in the form of issuing commercial paper at a discount (so as to not have "interest-bearing debt") to cash-rich corporates. Some issued at "rates of up to 73%."

That number surprised me.