Chinese developer seems to miss a bond payment - although only those with the actual coupons are in the know.

So here we are. A large swathe of the investing world sits and waits about thirty days or so to see if one of the largest property developers in China, Evergrande, defaults or not. The company didn’t muster enough cash – apparently - to service a coupon on a US dollar bond last Thursday. Or maybe they did, to ostensibly pay back domestic bond holders while leaving everyone else high and dry. 

Apparently, an even bigger payment is due on another bond this week. But you would not know anything from their website even though that specific payment, or lack of it, had most of the world’s equity markets bouncing around last week.

Disclosing Nothing

Rather than discuss the implications of a default, and the possibility of contagion, I thought it more apt to simply look at their disclosure practice - or utter lack of it. Beyond anything else that might happen, that is what investors are going to have to get very comfortable with in the future, particularly in the region.

Let’s look at Evergrande’s public website and click over to the investor relations section. As part of that, I hold little hope that they will have a specific section for bond holders, such as UBS or Credit Suisse have.

You can't really count that against them, as most of the requirements around the world related to selective disclosure, such as Regulation FD, revolve around equity and were created for insider trading. Selective payment, in any case, such as we are seeing here, usually ends up being the purview of bankruptcy administrators anyway.

Inability to Pay

Then, let's click the announcement tab. It looks promising, given the most recent one was sent on the 14th of September of this year. But in it, they only say that they expect sales to contract and that they haven’t had any success selling parts of the business or their office building in Hong Kong.

They did say they wouldn’t be able to cough up their guaranteed obligations for third-party wealth management products on time. At least I seem to have landed at the right company – the one everyone is talking about.

At best, they indirectly referenced an inability to repay debts, saying this could have an adverse material impact.

Then they go on to say they are looking for new equity investors while announcing the engagement of financial advisers to see what options they have.

Nothing is directly mentioned related to any bonds, what specific payments are coming up or what the overall debt maturity profile looks like. They certainly don’t seem to say they will only pay back domestic investors if and when the time comes.

Irrelevant Disclosures

So let’s cheerfully set all that out of our minds and happily scroll over to circulars. The last message was on 11 May. It contains information about the proxy forms to be used at the AGM in June, together with a message announcing the payment of a final dividend, the extension of a share buyback mandate and the election and re-election of board directors. Nothing about bonds here.

Then they have a media tab full of press releases. That seems appropriate for someone like me so I take a look.

The last message was sent on the 3rd of September and it is in Chinese only although the headline is in English. No luck here. They are simply providing an update on contracted sales results for August.

I also sent a request to the Investor Relations team for information simply to cover all the bases. But still, a day later, they have not responded with anything at all.

Byzantine Messaging

The sum total of all messages seems to be a confusing mess. It paid a dividend, it might keep buying back shares, yet tried hocking off significant chunks of its business, while appointing what are in essence bankruptcy advisors - all in the same year, if not the same few months.

It is somewhat understandable. They were intent on adhering to Hong Kong’s byzantine disclosure rules, as you can see from the uniform, font and format of their announcements, rules which clearly promote form over extremely little substance.

When times are good, everyone pays lip service to disclosure rules. But when they are not, businesses tend to become silent and just disclose what they have to, even when it makes no sense. Investors in Asia, domestic or international, are going to have to get used to that.