Evergrande’s potential debt explosion is “not a contagion” for the stock market, says the man who said the company was insolvent 10 years ago

Citron Research founder Andrew Left felt a little vindicated on Monday as China’s Evergrande appeared on the verge of collapse and sent shock waves through the financial markets.

“Yes, I feel vindicated,” he told MarketWatch in a phone interview on Monday.

As early as 2012, Left accused the prominent property developer of aggressive accounting practices and, based on his research, accused him of actually being insolvent.

Read: Evergrande isn’t the only reason the stock market is heading for its worst day in 2 months. Here are 5 more reasons

Left said China’s second largest property developer has not changed much since the initial analysis of its problems, other than the scale of the problems.

“Nothing has changed in the 10 years since this research … I just figured out when the problems started,” Left told MarketWatch.

Evergrande
6666,
-11.30%

has more than 300 billion debt to global financial markets.

However, the left sees the problem as likely, which will be contained by China’s nature of controlling its economy and willingness to bail out troubled businesses.

“So they will do whatever they have to do” to contain the damage to the broader economy and limit spillover, the left declared. However, he said investors here are unlikely to be watching the wheels of China’s machinery turn, given that Beijing tends to operate behind a veil on business matters.

As the Wall Street Journal In an article on Friday, China’s Evergrande Group turned billions of dollars in borrowed money into “millions of Chinese citizens’ dream of owning a home.”

However, this dream has been funded with oversized loans that are soon due.

Evergrande faces an interest payment of $ 83.5 million on September 23 for its March 2022 bonds; and a payment of $ 42.5 million on September 29 for its March 2024 bonds, according to news reports. If these payments are not paid within 30 days of the due date, Evergrande would be in default.

S&P Global Ratings said Monday that Evergrande will default on payment more than just waves in the financial markets, but it is unlikely that there will be a tidal wave of defaults.

Left believes that a likely Chinese intervention in Evergrande will limit any encroachment and prevent potentially damaging waves in global markets, he speculated. “They’ll just control it better,” Left said of the Chinese government regarding Evergrande. “It’s not a contagious event,” he said.

Nearly a decade ago, the founder of Citron Research was banned from trading in Hong Kong markets after losing a civil case against regulators related to his Evergrande allegations. The legal battle lasted more than half a decade and cost him millions.

Left said his ban on the Hong Kong market will be lifted next month, but it is not clear if he will definitely invest heavily there.

“I have a complete black mark on me because I have said everything that has already turned out to be true,” he was quoted as saying Institutional investor Last month. “It is Hong Kong’s attempt to stifle the truth. They knew it was going to happen, but they didn’t need a short seller to say anything about it. “

Left told MarketWatch that part of the reason he believes Evergrande was so heavily indebted is the notoriety of its CEO Hui Ka Yan, who founded the company in 1996 in Guangzhou as the Hengda Group.

“China is obviously overbuilt,” Left said of the Chinese real estate market. “But I think it’s a problem that they let this guy run wild,” he said of the Evergrande CEO.

Hui has private assets of approximately $ 10.7 billion. according to Forbes. Hui floated Evergrande in 2009 and reportedly owns the majority of the company.

the South China Morning Mail last month reported that Hui resigned as chairman of the closely held Hengda Real Estate Group in a move that “voiced concerns about his grip on his flagship China Evergrande Group. “

Evergrande worries have been blamed for a widespread sell-off in the market that put the Dow Jones Industrial Average on its way to its worst daily decline since October 28, 2020, according to data from Dow Jones Market Data. The S&P 500 index
SPX,
-1.70%

and the Nasdaq Composite Index
COMP,
-2.19%

were also down 2.7% and 3.2% respectively on Monday.

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