Home » Posts tagged 'evergrande'

Tag Archives: evergrande

Now that was wild. Let’s start with the Chinese developers. Indicative of the more troubled companies, Kaisa Group bond yields surged to almost 51% in Wednesday trading, up from 36% to begin the week (20% to start the month). Yields closed the week at 44.7%. After beginning the week at 23.3% (October at 16.6%), Yuzhou Group bond yields surged to almost 38% in Thursday trading, before reversing sharply lower to end Friday’s session at 27.7%. China Aoyuan yields began the week at 16.6%, jumped to almost 20% on Thursday, but were back down to 17% by week’s end. Evergrande yields ended the week at 75%. Acute instability for bonds of a sector that, according to Nomura analysts, has accumulated a frightening $5 TN of debt.

An index of Chinese dollar developer bonds began the week with yields of 17.5%, up from 14.4% to begin the month and 10% back in July. Yields closed Thursday trading at a record 20%, before ending the week at 19.3%.

Ample volatility as well in the cost of insuring against default for the major Chinese banks. China Development Bank CDS surged 10 Monday to 77 bps, up from 43 bps points at the beginning of September to the highest level since the pandemic crisis. China Development Bank CDS then reversed sharply lower, ending the week down at 62 bps. Industrial and Commercial Bank of China CDS traded to 78 bps (high since April ’20), up from 48 on September 17, before closing out the week at 76 bps. China Construction Bank traded to a post-pandemic high 75 bps (ended week at 74), after beginning the year at 36 bps.

It’s been a wild ride for China’s sovereign CDS. After beginning October at 47, China CDS closed last week (10/8) at 52.5 bps.

…click on the above link to read the rest of the article…

Contagion!

October 14, 2021

There has been a litany of bad news recently, including the U.S. August humiliation in Afghanistan, China’s aggressive actions against Taiwan and increased tensions with Iran, North Korea and Russia.

It will take the U.S. years, possibly decades, to recover from the debacle of August 2021 and the collapse of American prestige. All of these geopolitical events combine to undermine confidence in U.S. power.

When that happens, a loss of confidence in the U.S. dollar is not far behind.

And, perhaps most importantly of all recent bad news, is a market meltdown and slowing growth in China.

Greatest Ponzi Ever

I’ve long advised my readers that the Chinese wealth management product (WMP) system is the greatest Ponzi in the history of the world. Retail investors are led to believe that WMPs are like bank deposits and are backed by the bank that sells them. They’re not.

They’re actually unsecured units in blind pools that can be invested in anything the pool manager wants.

Most WMP funds have been invested in the real estate sector. This has led to asset bubbles in real estate (at best) and wasted developments that cannot cover their costs (at worst). When investors wanted their money back, the sponsor would simply sell more WMPs and use the money to pay back the redeeming investors.

That’s what gave the product its Ponzi characteristic.

The total amount invested in WMPs is now in the trillions of dollars used to finance thousands of projects sponsored by hundreds of major developers. Chinese investors are all-in with WMPs.

Now the entire edifice is collapsing as I predicted it would.

The largest property developer in China, Evergrande, is quickly headed for bankruptcy. That’s a multibillion-dollar fiasco on its own. Evergrande losses will arise in WMPs, corporate debt, unpaid contractor bills, equity markets and unfinished housing projects.

…click on the above link to read the rest of the article…

Weekly Commentary: Contagion

October 10, 2021

Weekly Commentary: Contagion

Another big miss for non-farm payrolls, with September’s 194,000 jobs gain less than half the 500,000 forecast. But with the Unemployment Rate down to 4.8% and Average Hourly Earnings up 4.6% y-o-y (not to mention almost 11 million job openings), there’s ample evidence that much of the labor market has turned exceptionally tight. The Senate passed debt ceiling legislation that should kick the can until early December. But let’s skip immediately to the week’s pressing developments.

It’s turning into a debacle. Evergrande bonds ended the week at 20 cents on the dollar, with yields surging to 72.5%. China’s real estate sector was hammered this week following the surprise default by mid-sized developer Fantasia Holdings.

October 6 – Bloomberg (Rebecca Choong Wilkins): “China’s property industry has suffered its first default on a dollar bond since China Evergrande Group sank deeper into crisis in recent weeks, fueling investor concerns over other highly leveraged borrowers and about global contagion. Fantasia Holdings Group Co., which develops high-end apartments and urban renewal projects, failed to repay a $205.7 million bond that came due Monday. That prompted a flurry of rating downgrades late Tuesday to levels signifying default. Creditors are now scanning debt repayment calendars as they try to suss out where the next flashpoints across the increasingly strained property industry may be — nearly a dozen firms have debt maturing through early 2022.”

October 7 – Wall Street Journal (Frances Yoon and Quentin Webb): “Fantasia’s nonpayment surprised investors because the… developer had recently said it had no liquidity issues, and indicated it had enough cash to repay the outstanding amount on a five-year dollar bond it issued in 2016. Fantasia, like Evergrande, was an active issuer of high-yield dollar bonds in the last few years…

…click on the above link to read the rest of the article…

“Catastrophic” Property Sales Mean China’s Worst Case Scenario Is Now In Play

October 9, 2021

“Catastrophic” Property Sales Mean China’s Worst Case Scenario Is Now In Play

No matter how the Evergrande drama plays out – whether it culminates with an uncontrolled, chaotic default and/or distressed asset sale liquidation, a controlled restructuring where bondholders get some compensation, or with Beijing blinking and bailing out the core pillar of China’s housing market – remember that Evergrande is just a symptom of the trends that have whipsawed China’s property market in the past year, which has seen significant contraction as a result of Beijing policies seeking to tighten financial conditions as part of Xi’s new “common prosperity” drive which among other things, seeks to make housing much more affordable to everyone, not just the richest.

As such, any contagion from the ongoing turmoil sweeping China’s heavily indebted property sector will impact not the banks, which are all state-owned entities and whose exposure to insolvent developers can easily be patched up by the state, but the property sector itself, which as Goldman recently calculated is worth $62 trillion making it the world’s largest asset class, contributes a mind-boggling 29% of Chinese GDP (compared to 6.2% in the US) and represents 62% of household wealth.

It’s also why we said that for Beijing the focus is not so much about Evegrande, but about preserving confidence in the property sector.

But first, a quick update on Evergrande, which – to nobody’s surprise – we learned today is expected to default on its offshore bond payment obligations imminently according to investment bank Moelis, which is advising a group of the cash-strapped developer’s bondholders. Evergrande, which is facing one of the country’s largest defaults as it wrestles with more than $300 billion of debt, has already missed coupon payments on dollar bonds twice last month.

…click on the above link to read the rest of the article…

Evergrande Contagion Threatens to Collapse the Everything Bubble

September 29, 2021

Evergrande Contagion Threatens to Collapse the Everything Bubble

Evergrande Contagion Threatens Everything Bubble

Photo by Hyunwon Jang

“Evergrande, a real-estate colossus in China, is collapsing. Don’t expect the collapse to be contained to China. The global macro implications are huge.” – Mike Shedlock

The U.S. economy is staring down the barrel of a financial shotgun thanks to the Chinese real estate bubble that just popped.

The trouble started at a developer called Evergrande, which is suffering a major crisis. One Wall Street Journal article sharply summarized the company’s problems:

The party has ended. Years of aggressive borrowing have collided with Beijing’s crackdown on debt, leaving the giant developer on the brink of collapse. Construction of Evergrande’s projects in many cities has stopped.

The Guardian referred to it as “China’s Lehman Brothers moment.” Of course, Lehman Brothers collapsed during the U.S.’s own 2008 financial crisis.

“The mess in China does not stop with Evergrande,” according to Mike Shedlock.

How huge? Well, we’ve seen this before in the U.S. (the Great Recession) and in Japan, where the real estate bubble of the late 1980s led to a “lost decade.” These economic events don’t respect national borders. They go global.

With that in mind, here’s how bad it might get…

China officials asked to get “ready for the possible storm”

Get ready for the possible storm ahead…

That’s exactly what the Chinese leadership warned local authorities after the Evergrande collapse became apparent. According to a Kitco report:

[Chinese] officials noted they are being asked to get “ready for the possible storm,” including all the potential economic and social consequences that could come along if Evergrande fails to meet its financial obligations.

And fail the company did, as reported by Market Rebellion in a tweet on September 23: “Evergrande reportedly missed its $83.53 million March 2022 bond payment that was due today.”

Here’s why this isn’t a “run of the mill” economic crisis for China:

…click on the above link to read the rest of the article…

Is Evergrande a symptom of deeper malaise?

September 22, 2021

Is Evergrande a symptom of deeper malaise?

Evergrande’s imminent default is rocking markets – but few believe the collapse of a Chinese property developer could trigger a global financial crisis. What if Evergrande is just a symptom of a deeper malaise within the Chinese economy and its political/business structures? Maybe there is more at stake than we realise? What if Emperor Xi decides he needs a distraction?

“If that’s true, we are very close to the China Syndrome ”

This Morning – Evergrande’s imminent default is rocking markets – but few believe the collapse of a Chinese property developer could trigger a global financial crisis. What if Evergrande is just a symptom of a deeper malaise within the Chinese economy and its political/business structures? Maybe there is more at stake than we realise? What if Emperor Xi decides he needs a distraction?

After yesterday’s market tumble Evergrande dominates thinking this morning. The early headlines say the risk is “easing”. Don’t be fooled. S&P are on the wires saying it’s on the brink of default and is unlikely to get govt support. It’s Asia’s largest junk-bond issuer. Anyone for the last few choc-ices then?

The market view on the coming Evergrande “event” is mixed. Some analysts are dismissing it as an internal “China event”, others reckon there may be some systemic risk but one Government can easily address. There is some speculation about “lessons” to be learnt… There are even China supporters who reckon its proof of robust China capitalism – the right to fail is a positive!

I’ve got a darker perspective.

The massive shifts we’ve seen in China’s political/business public persona over the past few years have been variously ascribed: a reaction to Trump’s protectionism, China taking its place as a leading nation, Xi flexing his military muscle, and now a clampdown on divisive wealthy businesses to promote common prosperity.

…click on the above link to read the rest of the article…

China’s Crackdown on Debt, Tech & Evergrande Sends Frazzled Wall Street Titans to China

September 22, 2021

China’s Crackdown on Debt, Tech & Evergrande Sends Frazzled Wall Street Titans to China

The property sector and its debts are possibly the biggest financial mess in China’s history.

The crackdowns by Chinese authorities on some of the biggest hype-and-hoopla industries have sent investors heading for the exits. There is a crackdown on debt to keep the financial system from imploding. There’s a crackdown on property speculation to tamp down on housing prices and on debt. There’s a crackdown on big tech – mostly internet, social media, and online gaming companies – for their monopolistic size and practices and a slew of other issues.

There’s a crackdown on education tech companies that sell off-campus educational courses that have driven the costs of education into the sky, discouraging Chinese couples from having more than one child. There’s a crackdown on all kinds of other activities that include reporting financial news and analysis in a way that the government doesn’t approve.

There are all kinds of reasons for these crackdowns, including the push by President Xi to create “common prosperity,” which has become a mantra to fight the ballooning wealth disparity linked to the surge in asset prices, including home prices that are now making homes unaffordable for the masses.

The crackdowns already resulted in some spectacular effects.

Wall Street is heavily involved in the stocks and bonds of these companies, both in the US and in China, many of which have dropped sharply, and some have collapsed.

Many Chinese companies have issued American Depositary Receipts, or ADRs, such as Alibaba. These ADRs aren’t actual stocks but were issued by an offshore mailbox entity in the Cayman Islands or wherever, that has a contract with the actual company in China.

…click on the above link to read the rest of the article…

Rabobank: As With Evergiven, Evergrande Is Just The Symtpom Of Far Larger Problems

September 21, 2021

Rabobank: As With Evergiven, Evergrande Is Just The Symtpom Of Far Larger Problems

It’s Ever Something

On 23 March, the giant cargo vessel Evergiven got stuck in the Suez Canal and blocked it for six days. Obviously, this dominated global headlines. Even Joe Shmoe could see global supply chains were not operating efficiently because of their gigantism. Six days, six months ago: yet today bullwhip supply-chain problems are still passing through the global system in escalating waves. Evergiven was just a symbol for those who had not been paying any attention to the underlying ‘too big to sail’ problems it represented. These were decades in the making, and will be years in the solving; will involve lots of money; and because they will also involve a different way of doing things, we haven’t even started yet in most places.

Evergrande, a giant Chinese property developer, has also run aground. Suddenly everyone in markets knows who it is, and is worrying about it. It is huge, and its debts are equally huge: $300bn, perhaps more. The whisper is that this could be China’s “Lehman moment”. Even with Chinese markets closed until Wednesday, we are seeing knock-on sell-offs around the world. Naturally, the upside specialists are also out there: Bloomberg today suggests market panic makes a bailout more likely: I think that dynamic only works on the US fiscal policy front.

Indeed, within China there is a spectrum of possible government approaches to the crisis. At one extreme, ‘the Austrian’, where the pieces fall where they may. I don’t think any economy anywhere would allow that to happen. At the other extreme, ‘socialism for the rich’, where everyone gets to carry on as if nothing happened, which is what we have seen in OECD since 2008…

…click on the above link to read the rest of the article…

Evergrande Misses Debt Payments Due Monday As World’s Richest Banker Says China’s “Lehman Moment” Has Arrived

September 21, 2021

Evergrande Misses Debt Payments Due Monday As World’s Richest Banker Says China’s “Lehman Moment” Has Arrived

Wall Street analysts have been churning out commentary this week proclaiming that while Evergrande’s troubles pose a serious threat to the Chinese economy, it’s potential collapse doesn’t represent a “Lehman Moment”. As Thursday’s bond-interest deadline looms, analysts at Mizuho write that “while street wisdom is that Evergrande is not a ‘Lehman risk’, it is by no stretch of the imagination any meaningful comfort…It could end up being China’s proverbial house of cards … with cross-sector headwinds already felt in materials/commodities.”

We touched on this earlier, with analysts at SocGen raising the odds of a “hard landing” – an “extended, severe property-led slowdown” – to 30%.

The FT, meanwhile, shared Barclays’ skeptical take on the Lehman scenario comparisons, arguing that Evergrande has little in common with the Lehman scenario aside from the timing (Lehman famously filed for bankruptcy in September 2008, 13 years ago.

“China’s situation is very different. Not only are the property sectors’ linkages to the financial system not on the same scale as a large investment bank, but the debt capital markets are not the only, or even the primary, means of funding. The country is, to a large extent, a command-and-control economy. In an extreme scenario, even if capital markets are shut to all Chinese property firms (which is not occurring and is only a tail risk at this point), regulators could direct banks to lend to such firms, keeping them afloat and providing time for an extended ‘work-out’ if needed. The only way to get a widespread lenders’ strike in a strategically important part of the economy would be if there were a policy mistake, where the authorities allow the chips to fall where they may (perhaps to impose market discipline), regardless of the systemic implications…

…click on the above link to read the rest of the article…

China Systemic Risk: HNA Group Denies Liquidity Problem, It’s Only “End-Of-The-Year Tightness”

December 9, 2017

China Systemic Risk: HNA Group Denies Liquidity Problem, It’s Only “End-Of-The-Year Tightness”

Every few days at the moment, it seems, we return to the subject of systemic risk in China related to its big four highly-indebted conglomerates, HNA, Anbang, Evergrande and Dalian Wanda.

Our main source of concern recently has been HNA, after it issued a bond with less than one year to maturity with the extortionately high coupon of 9%. This prompted us to ask whether China was experiencing the beginning of its Minsky moment? The reason for our continuing focus on HNA is its $28bn of short-term debt which matures before the end of next June, much of it accumulated during a binge of acquisition-driven growth which saw it become a major shareholder in Deutsche Bank, Hilton Worldwide and others.

Last week, as we discussed, S&P downgraded HNA’s credit rating by one notch from b+ to b, five levels below investment grade. in another sign that HNA is under pressure from the Chinese government and its creditors, CEO Adam Tan announced that it was ditching its acquisitive strategy, while considering the IPO of Gategroup, a company it only acquired last year for $1.5 billion.

We also noted how HNA businesses, even ones with supposedly good credit ratings, were stepping up fundraising moves in the domestic bond market at high coupon rates. For example, Hainan Airlines, the company’s core business, issued bonds at junk rates despite having “top ratings from local credit assessors”.

Although cancellations of bond offerings in China had reached their highest level since April, due to the rout in the domestic market, we remarked how HNA didn’t appear to have that “luxury”. While it may not have the luxury, it’s been forced into cancellations. On Wednesday, Hainan Airlines scrapped a 1 billion yuan ($151.2 million) of perpetual bonds to repay a maturing debt. This from Bloomberg.

…click on the above link to read the rest of the article…

Tag Archives: evergrande

Content

Post categories

Economic Links

Energy/Resource Links

Environmental Links

Geopolitical Links

Liberty Links

News Links

Other Links

Survival Skills

Post Archives by Category

Latest Posts