What's up guys and welcome back to wall street millennial on this channel, we cover everything related to stocks and investing today we're continuing our coverage of the unfolding evergrand disaster with more than 300 billion dollars of liabilities. The company is struggling to stay afloat in october. The property developer narrowly avoided technical default when they made a scheduled interest payment within the 30-day grace period, but they have billions of dollars worth of payments due over the next year, as well as billions more out to their wealth management, customers and construction contractors. In march and april 2022 they have 3.6 billion dollars of principal payments, due with the share price down 80.

Since the beginning of the year, it's looking increasingly likely that they will default. Chinese regulators have pressured immigrant founder and chairman xu xia, yin to liquidate his personal assets and inject this capital into evergrand. The chinese state media reports that today he has liquidated 1.1 billion dollars worth of assets for this purpose. Shu has an estimated net worth of 8 billion dollars, while this might sound like a lot, is small in comparison to evergrand's 300 billion dollars of liabilities.

In this video we'll look at why shu is selling his personal assets and whether or not this will be enough to save the company, he founded pretty much. All corporations, including evergrand, are considered limited liability corporations. This means that shareholders have limited liability in the case of the firm defaults. If the firm goes bankrupt, its creditors can seize all the assets held by the firm, but they can't go after the personal wealth of its shareholders, so shareholders can never lose more money than they spent to buy their shares in the first place.

This is why a stock price could never be less than zero, even if the company has negative shareholders equity on their balance sheet. So how does this relate to evergrand? Just a few years ago, evergrand founder and chairman shuja yin was the richest man in china. With a net worth of 45 billion us dollars. The substantial majority of his wealth was held in evergreen stock, but over the years he did sell some of his stake.

In the company also until its problems started arising last summer, the company paid out large dividends to its shareholders. Given how big shoes stake in the company was, he collected billions of dollars worth of dividends over the years. He used this money to buy three super luxury apartments in hong kong, which are worth about 100 million dollars each. He also spent tens of millions of dollars on luxury pieces of chinese calligraphy and exotic koi goldfish.

He also owns a yacht and a couple private jets that combined are probably worth more than 100 million dollars. Evergrand is a limited liability corporation. If they go bankrupt, shu's stake in the company may become worthless, but he should still be able to keep all of his other assets that he personally owns. So why is he now being forced to sell them? Evergrand arguably has systemic importance to the chinese economy.

It has 300 billion dollars of liabilities to bondholders suppliers and its wealth management customers. Real estate makes up almost one third of the chinese economy. If evergrand is allowed to completely collapse, it could very well cause a financial crisis and plunge the country into a deep recession. Many economists and market observers think the chinese government will be forced to bail out the company to avoid a disorderly collapse.

The last thing they want to do is create a layman brothers situation, but at the same time the chinese government doesn't want to be viewed as bailing out a massive company at the expense of the taxpayer. Now that xiujian is liquidating a substantial portion of his assets to provide liquidity to evergrand. This gives the government some wiggle room for a potential future bailout if they structure the bailout in a way that wipes out the common shareholders and leaves the founder substantially poorer, they can legitimately tell the public that they weren't bailing out the billionaires so far. Shu has liquidated 1.1 billion dollars worth of his personal assets to contribute to evergrand.

Much of this came from his personal, real estate holdings in hong kong. He still has his yacht, which could potentially bring in another 60 million dollars besides real estate and yachts. His other significant assets include chinese calligraphy and exotic koi fish, while he may have spent tens of millions of dollars on these items. They'll probably sell for much less than this if their fire sold at auction bloomberg estimates that his net worth is about 8 billion dollars.

He's already sold 1.1 billion dollars worth of assets, he probably sold his most liquid items first. So what remains? Are things such as his calligraphy collection, which are much more difficult to value, even if he sells everything he owns, he might only receive half of their original value at an auction fire sale. So let's say he can provide 4 billion worth of cash to evergrand. Would this be enough to save evergrand? Unfortunately, the answer is no, and it's not even close.

The company has about 8 billion dollars of principal and interest payments due through the end of next year. They also have billions of dollars in liabilities to suppliers, contractors and wealth management. Customers in total they'll need to come up with well over 10 billion dollars of cash just to get through 2022.. The company has almost no cash right now and is struggling to pay their bills at the end of each grace period.

But perhaps the most concerning aspect of the current situation is that their revenue has grown to a near halt and they are burning cash every day. As the company's financial troubles become more and more obvious, since the summer prospective home buyers have become increasingly hesitant to place down payments on evergrand properties. If a developer goes bankrupt before the apartment is delivered, the home buyer will be left with an unfinished property. In the first half of 2021 evergrand sold on average 9.5 billion us dollars worth of real estate each month.

This is a normal amount of sales for them by august, home buyers were starting to get scared and they only sold 6 billion, which is 36 less than normal, but it really started to get bad in september when they recorded less than 600 million dollars of sales Or 94 less than normal. In fact, the reality of the situation is even worse than it seems unable to pay its contractors and suppliers in cash, evergrand started, offering them finished and unfinished properties. Instead, at steeply discounted prices, they record these types of transactions as revenue, but they don't actually receive any cash. Evergrand makes huge losses on these sales and is not sustainable.

They will run out of properties before they pay off all their liabilities. Almost zero regular home buyers are putting up cash to buy new evergreen properties at anything close to their list prices. Additionally, many of their development projects remain on hold, as they don't have the cash to fund their completion. For example, this theme park has turned into a ghost town in the past few months, with no construction work being done.

Eventually, these unfinished developments will fall into disrepair every day that goes by their interest, accrues their properties depreciate and they make almost no new revenue. Evergrand has been trying to sell their property management business as well as some equity investments that they made in the past, but so far they have not been able to find any willing buyers if they keep going down their current path with sales down 94. They will almost certainly go bankrupt. Part of the problem is that it's not just evergrand.

Almost all chinese property developers have excessive leverage and many are on the brink of default. Evergrand is trying to offload its properties, but other developers are worried about their own balance sheets and don't want to take on more debt to buy them. This creates a situation where many developers are looking to sell massive developments, but almost nobody can buy them so far. The chinese government has made no commitments to bailout evergrand or any other developer.

They've asked some state-owned enterprises to start looking into buying some of evergran's properties, but today nothing significant has happened on this front. The only way for evergrand to survive is, if home buyers regain confidence in the company and start buying homes again. At this point, the only realistic way that this can happen is if the government gives some type of assurance to home buyers that they'll be fully insured. When they buy an evergrand home, if the government wants to do anything, they should act fast as time is not on their side.

At the current rate, evergrand will probably have to declare bankruptcy by this coming spring. Alright, guys that wraps it up for this video. What do you think about the evergrand founder liquidating his luxury assets? Do you think this will be enough to save the company? Let us know in the comments section below, if you enjoyed this content, make sure to hit the like button and subscribe. So you don't miss future uploads as always.

Thank you so much for watching and we'll see you in the next one wall, street millennial signing out.