That’s what research-firm Citron Research has said in a report published a week ago. Jim Chanos probably already knew it, by the way…
According to Citron’s research, Evergrande who ranks among the top 5 Chinese property companies is insolvent and will be severely challenged from a liquidity perspective. The report also says that “the Company’s management has applied at least 6 accounting shenanigans to mask Evergrande’s insolvency.”
Evergrande Real Estate Group was founded by Xu Jiayin, the fifth richest person in China with a fortune of about US$7.5 billion. Foreign shareholders of his
lemon firm are Merrill Lynch, Deutsche Bank and Temasek Holdings, who paid $400 million for an 8% stake in the company in 2007. Owner of a Chinese professional soccer club, Xu attracted international attention last year when his soccer team Guangzhou Evergrande pulled off one of the biggest transfers in the country’s football history: it signed Argentine playmaker Dario Conca for a record US$1 million monthy salary.
Now you have a hint where that money may have come from. Here’s an excerpt of Citron’s note on Evergrande Real Estate Group:
“Citron .. presents the conclusion that HK:3333 is essentially an insolvent company that has consistently presented fraudulent information to the investing public.
Evergrande is not a story about the “China real estate bubble”; rather it is a tale of a company who has abused the capital markets as well as the generous lending of the Chinese Government in order to enrich one man, aggrandize his personal ego and support his pet projects.
Bribery, excessive spending, and off-balance sheet transactions are the foundation of Evergrande’s financials.
The situation at Evergrande is so murky that, within the last year, even the Chinese Ministry of Finance fined Evergrande for reporting inaccurate financial statements.
… we believe that Evergrande has misled investors and represents the worst of Chinese neo-capitalism, and therefore represents a good short opportunity in relation to other exposure in the Chinese capital markets.
Whether it be the capital markets, government enforcement, hard or soft landing, the endgame for Evergrande is a certainty; the only uncertainty is the timing.”
Citrus Research’s boss Andrew Left told CNBC the following: “If you have exposure to China, and you want hedged exposure, here’s an over levered company whose sustainability lies on real estate speculation and not consumption.”
If this proves to be right, Jim Chanos might be on his way to double his fortune…