Remember Evergrande? There is new progress to this China real estate giant.
Chinese authorities told billionaire Hui Ka Yan to use his personal wealth to alleviate China Evergrande Group’s deepening debt crisis, according to people familiar with the matter.
Beijing’s directive to the Evergrande founder came after his company missed an initial Sept. 23 deadline for a coupon payment on a dollar bond, said the people, asking not to be identified discussing a private matter. Local governments across China are monitoring Evergrande’s bank accounts to ensure company cash is used to complete unfinished housing projects and not diverted to pay creditors, the people said.
It’s unclear whether Hui’s fortune is big and liquid enough to make a sizeable dent in Evergrande’s liabilities, which swelled to more than $300 billion as of June…
Hui’s net work has dwindled to about $7.8 billion from $42 billion at its peak in 2017, according to Bloomberg Billionaires Index estimates. But the figure comes with considerable uncertainty.
Much of Hui’s known wealth is derived from his controlling stake in Evergrande and the cash dividends he’s received from the company since its 2009 listing in Hong Kong. Hui has pocketed about $8 billion over the past decade thanks to Evergrande’s generous payouts, according to Bloomberg calculations. It’s not known how Hui reinvested those dividends.
I do think that the concept of limited corporate liability is a bit porous if you’re a Chinese billionaire. In America, if you run a company with $300 billion in debt, and it can’t pay that debt, and you have $8 billion sitting in your personal bank account, you say “ah I wish I could do something for all of my company’s creditors but unfortunately my deep commitment to our capitalist economic system prevents me from paying debts that aren’t mine, my hands are really tied here.” This is so deeply the American way that Donald Trump did it repeatedly and was elected president for his troubles.
In China, if you run a company with $300 billion of debt, and it can’t pay that debt, and you have $8 billion sitting in your personal bank account, and the government calls you up to say “hey spend down your bank account to pay that debt,” the only possible answer is “yes, that’s what I was already doing, of course, I would never take $8 billion and run and leave my creditors holding the bag.” Whether or not you signed a personal guarantee, you signed a personal guarantee.
Temperamentally I tend to be a big fan of limited liability, but I do think that there is something to be said of each system.
I don’t know how much Hui ransacking his couch cushions for spare change will actually help with Evergrande $300 billion of debt, but I suppose if he has cashed out $8 billion then he probably has enough money to pay off a $100 million interest payment here, a $200 million maturity there. If this is more “bridging a temporary liquidity problem” than it is “throwing money into the ocean of a catastrophic default,” maybe his personal fortune will help. But even if it doesn’t help and Evergrande does default, it is probably wise for him, personally and politically, not to end up with too much money.