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China's Evergrande Group crisis

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Who exactly is DMSA?

I'm still skeptical about a collapse.

The evergrande dilemma should be viewed through a geopolitical lens, with the recent coronavirus pandemic and US-China trade wars in mind.

It doesn't make sense for the CCP to allow evergrande to collapse and allow the narrative of China being a poor global citizen to continue.

The GFC triggered made credit markets lock up overnight because of international events. I don't doubt for a second that if such an event were to occur and China were solely responsible (by allowing collapse), then there would be a targeted, international response restricting funds into China. Ergo, the ramifications of a collapse in China outweigh whatever philosophy they're trying to push.

What I think will happen is the CCP will hand out its own form of economic justice. The world watched as banks were bailed out during the GFC with no/limited consequences to the executives on duty or their companies.
I think China will be harsher in this regard, with executives held personally responsible. It would be in keeping with their model of shared social duty for unified economic gain.
 
Almost three months later and the Evergrande implosion seems to be playing out in slow motion with the company continuing to sell assets to pay down debt.

www.reuters.com

Evergrande moves toward restructuring; state swoops in to contain risk

China Evergrande Group has set up a risk management committee as the cash-strapped property developer inches closer to a debt restructuring that has loomed for months over global markets and the world's second-largest economy.
www.reuters.com www.reuters.com

China's Central Bank and authorities in China's Guangdong province are stepping in to try and contain the fallout from the crisis. The situation is being played down by Chinese regulatory authorities in an attempt to restore confidence in China's ailing property sector.

"Evergrande's problem was mainly caused by its own mismanagement and break-neck expansion," the People's Bank of China said.

Short-term risks caused by a single real estate firm will not undermine market fundraising in the medium and long term, it said, adding that housing sales, land purchases and financing "have already returned to normal in China."

It seems China is determined to make the Evergrande collapse a case of letting the air out of a balloon slowly instead of allowing to pop all at once.
 
greggles said:
Almost three months later and the Evergrande implosion seems to be playing out in slow motion with the company continuing to sell assets to pay down debt.

www.reuters.com

Evergrande moves toward restructuring; state swoops in to contain risk

China Evergrande Group has set up a risk management committee as the cash-strapped property developer inches closer to a debt restructuring that has loomed for months over global markets and the world's second-largest economy.
www.reuters.com www.reuters.com

China's Central Bank and authorities in China's Guangdong province are stepping in to try and contain the fallout from the crisis. The situation is being played down by Chinese regulatory authorities in an attempt to restore confidence in China's ailing property sector.

"Evergrande's problem was mainly caused by its own mismanagement and break-neck expansion," the People's Bank of China said.

Short-term risks caused by a single real estate firm will not undermine market fundraising in the medium and long term, it said, adding that housing sales, land purchases and financing "have already returned to normal in China."

It seems China is determined to make the Evergrande collapse a case of letting the air out of a balloon slowly instead of allowing to pop all at once.
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if you mean across China and NOT just Evergrande , is that plan so bad , has to be better than regular discreet bailouts and continued reckless expansion .

but this has happened before in the West , the Evergrande problem is probably because Western investors backed up the truck to grab a BIG load of high-yield debt ( and probably leveraged those assets and created derivatives on that mix of 'products ' )

i doubt the greedy over-expansion stopped at the Chinese border (with the corporate debt transactions )

but not only should it send shivers of caution across the Chinese financial and construction sectors , it is a timely reminder to re-assess your investments across the globe in these sectors ( there will be contracts and contractors at risk here as well not just investors , banks and employees )
 
Evergrande appears yo have missed the payment deadline.
Now comes the negotiations between bond holders.
Could be interesting.


From ABC News
Chinese developer Evergrande is edging closer to formal default, with reports suggesting that it has missed its final deadlines to pay some bondholders.

Key points:​

  • Multiple sources have told financial news service Reuters that Evergrande has missed a payment deadline
  • This would push Evergrande formally into default unless it can negotiate a deal with all bondholders
  • However, Hong Kong's share market rallied on Chinese central bank moves to lower borrowing costs

Evergrande did not make payments on some $US bonds at the end of a month-long grace period, sources familiar with the situation told Reuters, setting the stage for a massive default by the world's most-indebted property developer.

No-one who invested in two bonds — issued by China Evergrande Group's unit Scenery Journey Ltd — had received payment as of 1am AEDT on Wednesday, a source familiar with the situation told Reuters.

Another four sources holding the bonds confirmed to Reuters that they had not received payment.

All declined to be named because they were not authorised to talk to the media.

Evergrande has not issued any communication to bondholders about the missed payment, one of the five sources said.
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Mick
 
The Financial Times has a story about the Risk Management committee with 7 people on it, including 4 from the Guandong CCP. Shenzen itself is too busty managing another property implosion .
Liu Zhihong, a senior executive from Guangdong Holdings, a conglomerate controlled by the Guangdong provincial government, was named co-chairman of the committee.

According to two people involved in Evergrande’s restructuring, the Guangdong government has assumed responsibility for Evergrande in part because the officials in Shenzhen have been preoccupied with similar problems at Baoneng, a local property and financial services group.
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China’s central bank, securities regulator and banks regulator all issued statements on Friday asserting that the developer’s woes stemmed from management errors and its crisis would not destabilise the financial system. On Monday night, the Chinese Communist Party’s Politburo said it would take steps to “boost public housing and support the housing market”.

In a statement issued on Monday night after shares in Evergrande fell to a record low in Hong Kong trading, [the soon to be disenfranchised] CEO Hui said the new committee would not report to the board “but will play an important role in mitigating and eliminating the future risks of the group”.
 
divs4ever said:
if you mean across China and NOT just Evergrande , is that plan so bad , has to be better than regular discreet bailouts and continued reckless expansion .

but this has happened before in the West , the Evergrande problem is probably because Western investors backed up the truck to grab a BIG load of high-yield debt ( and probably leveraged those assets and created derivatives on that mix of 'products ' )

i doubt the greedy over-expansion stopped at the Chinese border (with the corporate debt transactions )

but not only should it send shivers of caution across the Chinese financial and construction sectors , it is a timely reminder to re-assess your investments across the globe in these sectors ( there will be contracts and contractors at risk here as well not just investors , banks and employees )
Click to expand...
for further reference , i got a scorching via some ASX listed companies ( contractors ) when the Arab miracle popped , i believe most of the damage was done via Dubai projects , i don't remember any of the ASX listed banks admitting any real damage , but some construction companies sure had some fallout .

but if financiers start to get nervous with other ambitious projects elsewhere , that could ripple
 
Well I believe this is it, start of the Evergrande collapse, how long before the spread reaches the market, took nearly a month in march 20202 for covid scare to spread.
I am ctually surprised at how slow news travel when the focus of the medias is on the 4 5 6th pfizer jab and omicron vs real issues.
But true, it is harder to force a Reset and keep the populace down on the news of a bond collapsing in China.
yet the effects will be real IMHO
 
Kaisa group, another Chinese developer, has also missed a payment deadline.
From Zero Hedge
Fitch said there was limited information available on Kaisa's restructuring plan after it missed $400 million in offshore bonds repayment on Tuesday. Evergrande said last week it planned to forge ahead with a restructuring of its debt.
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I found this piece of data surprising.
But most importantly, as noted earlier, China is desperate to limit the fallout on the broader housing market, in a country where real estate accounts for about a quarter of economic output and as much as 75% of household wealth as we have noted for half a decade. China’s housing slump has intensified in recent months after sales plunged and home prices fell for the first time in six years.
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Mick
 
it would be more than just the Chinese Government worried about contagion from Evergrande and Kaisa , if only we had a better idea who was holding that distressed debt ( and derivatives on them ) are they tucked away in Pension/Super funds , hiding in bank portfolios maybe in ETF bond funds

and of course every building company that sells 'off the plan ' ( and their financiers ) and their contractors/sub-contractors whether they do business inside China or outside of it

one thing to watch is any real decrease in bonds being bought by Central Banks ( even if they only buy local bonds because several have been buying mortgage banked securities over the past two ears propping up local property markets )
 
divs4ever said:
it would be more than just the Chinese Government worried about contagion from Evergrande and Kaisa , if only we had a better idea who was holding that distressed debt ( and derivatives on them ) are they tucked away in Pension/Super funds , hiding in bank portfolios maybe in ETF bond funds

and of course every building company that sells 'off the plan ' ( and their financiers ) and their contractors/sub-contractors whether they do business inside China or outside of it

one thing to watch is any real decrease in bonds being bought by Central Banks ( even if they only buy local bonds because several have been buying mortgage banked securities over the past two ears propping up local property markets )
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I haven't looked into it too much, but I'm pretty confident that the bonds which were defaulted on were offshore and dollar bonds, so that's probably why the chinese government didn't step in - defaulting to foreigners is a very different thing to defaulting to your own internal citizens.
 
My opinion is that, except for those who have had their bonds defaulted on, this is a nothing burger in terms of the world economy.

Don't forget we now live in a financial Twilight zone where inflation is 10 or 12% (real,not reported) and 10 year yields less than 2%, with no real prospect in the near to medium term that they're going anywhere.

we have a US economy that is going straight down the sh¹t chute and a stock market that keeps cracking all-time highs.

We have a precious metals market that despite all the above is absolutely moribund.

There's all sorts of other weirdnesses, but it's Friday afternoon and I am three sheets to the wind, so you'll have to fill in the blanks yourselves.
 
wayneL said:
My opinion is that, except for those who have had their bonds defaulted on, this is a nothing burger in terms of the world economy.

Don't forget we now live in a financial Twilight zone where inflation is 10 or 12% (real,not reported) and 10 year yields less than 2%, with no real prospect in the near to medium term that they're going anywhere.

we have a US economy that is going straight down the sh¹t chute and a stock market that keeps cracking all-time highs.

We have a precious metals market that despite all the above is absolutely moribund.

There's all sorts of other weirdnesses, but it's Friday afternoon and I am three sheets to the wind, so you'll have to fill in the blanks yourselves.
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the market ( and lending ) runs on confidence , if every lender/investor was a hard-headed realist like Warren Buffet , they would be sitting on piles of cash .. WAITING

( i would be as well but i need to be EARNING otherwise i would have a few good stocks and a mix of bullion and cash )

good luck
 
divs4ever said:
the market ( and lending ) runs on confidence , if every lender/investor was a hard-headed realist like Warren Buffet , they would be sitting on piles of cash .. WAITING

( i would be as well but i need to be EARNING otherwise i would have a few good stocks and a mix of bullion and cash )

good luck
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I'm in the sitting on piles of cash camp (apart from some PM and crypto HODLs), because I am still earning (at least until some galloping housewife's mongrel warmblood takes out my knee cap or something like that).

... But I am not very comfortable with that. Yes waiting, and yes taking a few trades on the commodities, but I just want to plonk it somewhere and go and have a festive dinner with friends and family.
 
i am retired , i need to be running with ( or in front of ) real inflation

yes it is very hard to park money sensibly , currently

a wizard like Buffet would have some juicy hybrids ( mine redeemed a few years back with no suitable replacements found )

good luck organizing the festive season i suspect there will be some extra dramas coming

cheers
 
wayneL said:
I'm in the sitting on piles of cash camp (apart from some PM and crypto HODLs), because I am still earning (at least until some galloping housewife's mongrel warmblood takes out my knee cap or something like that).

... But I am not very comfortable with that. Yes waiting, and yes taking a few trades on the commodities, but I just want to plonk it somewhere and go and have a festive dinner with friends and family.
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So pretty much like all major parties then?
 
Following on from the above collapse meme, we now have the bonds of the biggest Chinese hpousing developer, Country gardens , plunged overnight after rumours it did not get support for a convertible bond deal.
From Bloombergs
Since taking the top spot from China Evergrande Group in 2017, Country Garden has remained the nation's largest developer in China by contracted sales. It employs more than 200,000 people.

Headquartered in the southern city of Foshan in Guangdong province, the firm - like China Evergrande Group - has focused in recent years on building housing developments in lower-tier cities.

And, like Evergrande, Country Garden has also relied heavily on access to funding in the offshore credit market; actually not just Evegrande but virtually all developer peers that binged on debt to fuel growth in the past decade only to see the window slam shut now. According to Bloomberg, it has the largest pool of outstanding US dollar bonds among China's biggest property firms, excluding defaulters, with some US$11.7 billion outstanding, Bloomberg-compiled data showed.

Founding chairman Yeung Kwok Keung transferred his controlling stake to his daughter Yang Huiyan in 2005. She is now the firm's vice-chairman and is the richest woman in China, according to the Bloomberg Billionaire Index.

Or at least she was, because on some of Country Garden's US dollar notes plunged to record lows in the wake of a report that the firm failed to win sufficient investor support for a possible convertible bond deal. Longer-dated bonds were trading as low as 69 cents on the dollar as of late Friday.
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And the contagion may well spread to others.
Meanwhile, in the latest wave of selling, investors are now scrutinizing Country Garden's capacity to raise funding from a variety of channels, particularly as the offshore credit market remains effectively closed to most developers. It needs to repay or refinance some US$1.3 billion on bonds this year, the majority of which are dollar notes. Its next maturity is a US$425 million bond due Jan 27.

The selling in Country Garden's bond accelerated last week after the company struggled to tap the market for fresh funds, reportedly pulling a $300 million convertible bond issue due to weak demand. At the same time, Sunac’s shares sank a record 23% after it sold new equity. Focus has also turned to the spillover effects of Country Garden's falling bond prices on the notes of other stronger developers as fears of contagion risks remain elevated.

Just to shore up confidence that it won't be the next Evergradnde, a statement on the Hong Kong stock exchange late Monday said that Country Garden bought back an aggregate principal amount of $5m of 4.75% notes due July 2022 and $5m of 7.25% notes due April 2026. And even though the company added that it would monitor market conditions and "may make further repurchase of its bonds", we are concerned that this tiny, theatrical $10MM buyback will do little to restore investor confidence.

And as investors nervously eye the fate of China's largest developer, fresh turmoil rocked Chinese property bonds on Monday on concern over the true scale of the industry’s hidden debts according to Bloomberg, deepening a selloff among higher-rated firms.

The latest selloff was catalyzed by a Debtwire report according to which Logan Group could be on the hook for $812 million of guarantees on outstanding obligations due through 2023. The news hammered Logan's note due 2023 which sank 14.1 cents to a record low 62.9 while Country Garden’s shorter-dated bond due 2024 tumbled 12.9 cents to 67.7 cents, extending last week’s selloff for the country’s biggest developer.

According to Bloomberg, the selling in Property stocks is morphing from one catalyzed by specific event to one sparked by mounting concerns about the transparency of China’s better developers, and is forcing bondholders to question the liquidity of firms whose finances appear sound. More debt would mean more creditors, some of whom could demand early repayment. There’s also the risk that hidden liabilities like trust loans, private bonds or high-yield consumer products receive preferential treatment over money owed to offshore creditors. China Evergrande Group, Kaisa Group Holdings Ltd. and Shimao Group Holdings Ltd. have all faced such obligations.
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Mick
 
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