The fateful day

arrived and Evergrande failed,

that is, the company has not paid

the interests of part of its obligations

as I announced in my previous one

video which made it fall again

by nearly 12% the course of the company.

There was indeed an agreement that

was found and Evergrande had given

a ray of hope last wednesday when

the company made this announcement,

except what most people don't have

seen, and besides, many of you fell

in the trap is that this agreement concerned

the so-called "Onshore" debt and denominated in yuan.

On the other hand, Evergrande has still not paid its

so-called “Offshore” debt amounting to 83.5 million

dollars and are now added 47.5 million

dollars that she will have to spend next Wednesday.

This step was therefore crucial for

investors in order to measure the importance

damage and Beijing has already warned

the country to prepare for a storm.

This is precisely what we will see in

this video because the future of the markets becomes

increasingly uncertain and the risk of a

new Lehman Brother and a stock market crash

promises to be almost inevitable, which would be

synonymous with a real financial tsunami

since Evergrande admitted that the adventure is

finished for her, her sentence is irrevocable!

JINGLE

EVERGRANDE'S TECHNICAL BANKRUPTCY

Hello to the whole community and

welcome for a new video, i

am Mathieu from the Libre Riche channel!

While it is true that an agreement has been reached on

the payment of interest on part of

Evergrande's debt, another part is

currently in default of payment. Indeed,

“onshore” debt is that held by

Chinese investors and denominated in yuan,

while the “offshore” debt is that

owned by foreign investors

and denominated in dollars and it is precisely

on this one that Evergrande failed.

In addition, a particularly

important to take into account,

and practically everyone fell in

the catch is that this agreement on the payment

interest does not necessarily imply

than the whole 232 million yuan

interest that the business owes has been paid.

Indeed, not only did the agreement not reveal

the amount of interest that would be paid, but in

more, no payment date has been communicated.

We simply know that “private negotiations

resulted in a compromise ”. So we could

very well imagine that in reality, no payment

will not take place and the company seeks to hide

its inability to repay its debts.

So while Wednesday's deal was

considered by some investors as a

positive development, others remain suspicious

and they are quite right as we will see.

Therefore, in addition to this particular press release

opaque which ultimately had for only

objective of calming the euphoria of the markets,

this same press release does

says absolutely nothing about the other

payment that the company had to make,

that is, the payment of interest on its

Thursday, September 23 dollar bonds.

None of Evergrande's creditors have any

news and next week the giant

real estate has to face another payment

interest on dollar bonds

for an amount of $ 47.5 million.

If this amount is actually not that high,

insofar as the company has not succeeded

to face a first deadline, we can

be pretty sure she won't pay no

more this Wednesday and unless we receive

unexpected last minute information,

we can already say that Evergrande

is about to enter a technical fault

on its dollar-denominated bonds.

The technical defect is precisely characterized

by the fact that a debtor, that is to say the entity

or the person who is in debt, does not respect

not the agreement that was established with a creditor,

in other words, the one who lent him money.

Thus, within 30 days, Evergrande will enter

technical fault if it fails to cope

to its contractual obligations and does

not the interest payment in dollars.

WHY EVERGRANDE IS AT THE EDGE OF THE GOUFFRE

At this point, a surprising fact and

which largely legitimizes the concerns

of investors concerns treasury

of the company. Indeed, according to his

financial accounts, Evergrande has no

liquidity problem, at least for the time being,

to meet the payment of its offshore debt.

And here you have to be very careful because

if the company does not reimburse a total of

$ 128.5 million, that is to say the 83.5

million dollars from last Thursday and the 47.5

million dollars next Wednesday, this

is not because the company cannot

to pay or that she does not have the resources

sufficient, no, it is simply

because Evergrande does not want to pay!

If the real estate giant does this, it is

obviously not because he wants to provoke

its decline or accelerate it is that it knows

knowingly that he will not be able to pay the totality

of its nearly $ 300 billion debt.

Evergrande is aware that his situation is

not tenable and if it should start to fail,

as much to start by not paying the debt as

towards foreigners who will not be able to

enter China to force him to pay

its obligations and thus save the furniture by

paying only local investors.

This tactic allows the company no

only to calm local investors,

but in addition to maintaining liquidity which

is not paid to foreigners in order to

reserve it for Chinese investors.

And it is precisely for this reason and

that point of no return that has been reached

that the course of the company has a new

times dropped by nearly 12% at the end of the week.

Personally, it makes me think about the risks

that exist around the VIE structure that

I explained in a previous video,

if tomorrow the Chinese government decides

unilaterally to terminate these entities

illegal. If you still haven't seen it and

that you want to understand why to invest

in Chinese companies has a

additional risk, I invite you to click on

the icon that appears at the top right of the screen.

As a result, now that Evergrande

confirmed its decision to default on

its dollar-denominated bonds,

what we will attend in the weeks to

coming is a default on nearly 20 billion

dollars in bonds, the value of

all the bonds that Evergrande has issued in

dollars and which are most likely condemned

to be unpaid by the Chinese company.

Obviously, even if a priori, 20 billion

of dollars is actually a tiny amount within

of the global financial system, much more serious is

the question of knowing what fate will be reserved for

remainder of the local debt of the Chinese company

if the latter were to go bankrupt.

Moreover, the Wall Street Journal,

in a world exclusive entitled “the

China is preparing for the fall of Evergrande ”,

we learned that Beijing is opposed to the rescue of the

most indebted real estate developer in the country and

started telling local authorities

to prepare for a possible storm.

THE EVERGRANDE LIQUIDITY CRISIS AND

THE ECONOMIC DISASTER THAT IS LIGHTING OUT!

At this stage, it is particularly

important to understand that the big problem

posed by the fall of Evergrande, it is

that the Chinese real estate market in

its whole could collapse, which

would inevitably have consequences on

the global economy as a domino effect.

You should know that Evergrande is in fact

than the tree that hides the forest and the actions

a large number of real estate developers

in China are falling on the stock market.

What you absolutely need to know is that a

business can face two types of

risks during his life: this is the

liquidity risk and solvency risk

and a liquidity risk can obviously arise

transform into a solvency risk

which can become disastrous and that is

precisely what could be happening in China.

If we take the example of Evergrande, we know

that its liabilities are 300 billion dollars,

while on the side of its assets, 14 billion

of dollars represents its treasury, that is to say

liquidity. In theory, a company that has

300 billion dollars in debt and only

$ 14 billion in cash lies

potentially in a dangerous situation.

This is not necessarily the case,

since let's imagine a person who gets into debt

to buy a property of 100,000 €.

In such a situation, the investor does not

maybe 10,000 € aside on an A booklet

which allows him to face the unforeseen but

it relies above all on the rent paid by the

tenants to repay their debt as they go

as time passes over 20 years for example.

However, the liquidity crisis could

prove in the event that the investor

must repay its debt of € 100,000 within

months to come, i.e. in the short term

but only has € 10,000 in cash.

Here, it is a liquidity risk because

the investor does not have sufficient cash

immediate and even rental income

will not be sufficient. Obviously he can

in absolute terms resell the property in order to obtain

the necessary money and thus reimburse

its debt and avoid the liquidity crisis.

Except that very often, mix speed

and haste can be harmful

because let's imagine that a real estate crisis explodes

and house prices are plummeting. From now on,

in addition to this liquidity risk, the investor must

face a solvency risk since if its

property loses value and falls to € 50,000,

then the latter is no longer solvent and does

will not be able to repay these debts which becomes

particularly dangerous since not only,

he must repay 100,000 € very quickly

but in addition, his property is only worth 50,000 €.

It is therefore necessary to always take into account,

on the one hand “the degree of liquidity of the assets”,

that is to say, is it possible for me to resell

quickly my possessions without their price

is not too affected; And on the other hand,

“The degree to which liabilities are payable”,

that is to say, in how long

will I have to repay my debts.

Coming back to Evergrande, the problem

with the company it is because it has the equivalent

approximately $ 304 billion in

debts and attention, on these 304 billion

in debt, over 243 billion

correspond to short-term debt,

in particular supplier debt.

In other words, nearly 80% of the debt of

Evergrande is payable on the short term. The

situation could therefore become extremely serious.

Despite everything, we could say, no

problem, Evergrande has only to resell its

real estate as the investor in

the previous example and in this way,

he will reimburse his creditors: it is besides

what some subscribers had said in the

comments on the previous video.

And very sorry to disappoint you,

but the situation is much more complex than

what it does seem and it is obviously

not as easy as it sounds.

The problem is that Evergrande is a

real estate developer and what constitutes

precisely the assets of a real estate developer? And

quite precisely real estate,

houses, apartments, buildings, etc.

And we all know that a house doesn't sell

not with a snap of a finger, it can put

a lot of time unless you're ready to sell off

the price of the good. The flip side is that if we are

in debt and that we need to resell

quickly a good, we agree to resell

at a lower price and therefore we will not get

not enough liquidity to repay

our debts: we fall into a vicious circle.

So, while previously it was

from a simple liquidity problem, now we

does indeed fall into a solvency crisis,

and there, it can hurt a lot!

To top it all,

not only does Evergrande have to face

short-term debt due with an asset

very little liquid since it consists of real estate,

but in addition, which is all the more surprising,

and this is real madness is that 60%

of this asset, i.e. the equivalent of

$ 220 billion is simply

consisting of real estate under construction,

in other words, the work is in progress!

So, if reselling a house may prove to be

be a real challenge, resell real estate in

full construction falls

mission impossible.

What a lot of people don't

still not understood is that,

the majority of Evergrande's real estate,

here 60%, are still not built and this

are therefore houses that will not be available

on the market that after several years

while at the same time, the debt of

the company must be reimbursed on the

short term, i.e. quickly.

No wonder then that currently,

the world stock markets are shaking because if

the real estate giant never ends up falling,

several things will happen:

First of all, there will be a liquidation

massive real estate assets and these assets

real estate will compete with those

other Chinese real estate developers. So if

Evergrande agrees to liquidate its assets with a

discount of 10, 20 or even 30% or more, it is

obvious that other real estate companies do not

will be more successful in selling their own homes,

unless they also lower their prices.

There will therefore be a deflationary wave on

real estate that will cause the bankruptcy of

many other real estate developers few

profitable which in turn will no longer be able to

repay their debts impacting by

the same occasion the Chinese banks.

If these Chinese banks fail

no longer to collect their debts,

they will turn off the credit tap

as was the case in 2008 with the

subprime crisis and if they close the

credit tap, fewer citizens will have

the possibility of getting into debt to buy

their residence, which means that the prices

to whom the houses will have to be sold

will be even lower and so on.

In addition, in addition to the real estate sector and

the Chinese financial and banking system,

it is therefore the entire world economy that

would be affected as many

investment funds and even cryptocurrencies

like tether are likely to be creditors

of these different sectors of activity.

Because even if tether, which as a reminder

is a stable coin, claims not to have any

Evergrande commercial paper, i.e. from

the debt of the real estate giant, the company could

very likely to have receivables from other

companies which themselves could be

affected by a fall of the real estate giant.

As a reminder, only 3.87% of the reserves of the

stable coins are made up of cash!

Thus, if the Chinese real estate system

falls, if the Chinese bank falls,

the repercussions will be global.

On the one hand, because as we have just seen,

we could witness a contamination phenomenon

and a chain reaction between the different

market players, and on the other hand, because

as we saw in a previous video,

China's growth rate is steadily increasing

fall for ten years now

and this growth was carried, among others,

by the massive indebtedness of the population and the

creation of a phenomenal real estate bubble.

For example, the real estate sector

represents around 30% of Chinese GDP,

that is, even higher levels than

Spain, a country which had particularly

suffered during the subprime crisis.

So the deflation of this bubble

could slow Chinese growth,

which would necessarily have an impact

negative for the rest of the countries around the globe.

Still, the world markets

fear that we get into what

we call it a “minsky moment” and I will come back to it

in a next video to explain everything to you,

besides, do not hesitate to me

say if this topic interests you.

To conclude, what few people seem

understand, and unfortunately and wrongly minimizes,

the effects of this potential bankruptcy is

that this is not an isolated event,

especially since the Chinese government

might not save the real estate giant

for different reasons that we will discuss

in a future video if you are interested in the subject.

CONCLUSION

And you ? Do you think the government

Chinese will save Evergrande from bankruptcy?

Do you think the business will disappear and

that the real estate market will collapse?

Do not hesitate to let me know in

the comments below this video,

as you know we read them

all and respond to each of them.

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