Citron Research
- The looming debt crisis faced by China's second largest property developer was on Andrew Left's radar nearly 10 years ago.
- The famed short-seller said China's Evergrande would be "severely challenged from a liquidity perspective" in a 2012 report.
- Hong Kong subsequently imposed a five-year ban on Left from trading in its stock market due to the report.
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Evergrande, China's second largest property developer, is on the verge of insolvency and has sparked a global stock market sell-off on Monday due to contagion fears.
While the reaction in markets has been panicked, short-seller Andrew Left of Citron Research warned investors about the growing risk of Evergrande nearly 10 years ago, and was banned from trading in Hong Kong markets as a result of his report.
In 2012, Left said that Evergrande "is insolvent" and "will be severely challenged from a liquidity perspective." At the time, Evergrande had about $12 billion in liabilities. Today, Evergrande has more than $300 billion in liabilities and has signaled it may not be able to pay interest payments on its debt due this Thursday.
"The evidence of management misconduct at Evergrande is shocking," Left said in his original report. But Left didn't realize the chairman of Evergrande, Hui Ka Yan, was a well-connected and powerful businessman in China. Those connections likely helped jumpstart a civil case against Left by Hong Kong regulators.
"I didn't know any of this… I would have never gotten into it," Left told Institutional Investor last month. "They deemed my report to be reckless. That was the word they used: reckless and negligent for spreading false information."
Hong Kong ultimately banned Left from trading in Hong Kong securities in 2016 for five years. That ban ends this October. Left lost his appeal against the ruling in 2019 and said he spent millions of dollars in legal fees.
"I got a complete black mark on me for saying everything that's already turned out to be true. It's Hong Kong's attempt to stifle the truth," Left said.
Shares of Evergrande have fallen more than 80% over the past six months, and its bond prices have plummeted to record lows as banks deny further lending to the highly levered property developer.
"I don't know what happened, but finally this past week, or month, he ran out of friends who are going to refinance his debt, and the debt became way too much," Left said of Hui. "In China, the big talk is, 'he's not too big to fail."
But despite Left's nearly 10 year old report turning out to be mostly right, he doesn't feel vindicated given the company's recent tailspin.
"I am not vindicated because I'm still banned," Left said.